Bank of England chief under fire for wage restraint call
Bank of England governor Andrew Bailey has been accused of “hypocrisy” after his suggestion that workers should not seek big pay rises attracted sharp rebukes from Downing Street, business groups and unions.
In a BBC interview the day after the central bank increased interest rates, Bailey said workers should avoid asking for large pay rises — even as households face the biggest squeeze on their income in decades — in order to help keep inflation under control
“In the sense of saying, we do need to see a moderation of wage rises, now that’s painful,” he said. “But we need to see that in order to get through this problem more quickly.”
Downing Street on Friday distanced the prime minister from the remarks, which put the BoE boss on a collision course with Boris Johnson, who has repeatedly called for a “high wage” economy.
“It is not something the prime minister is calling for,” Johnson’s official spokesperson told reporters. “We obviously want a high growth economy and want people’s wages to increase.”
Sharon Graham, general secretary of the Unite union, which is organising industrial action at the Financial Conduct Authority, where Bailey previously worked, said: “Workers didn’t cause inflation or the energy crisis so why should they pay for it?”
She added: “Workers don’t need lectures from the governor of the Bank of England on exercising pay restraint. Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?”
Mick Lynch, general secretary of the Rail, Maritime and Transport union, said the comments “reeked of hypocrisy”.
He argued that the government’s April increase in national insurance and the energy price crisis would not affect Bailey in the same way that it would hit workers: “It’s easy for him to say when you are on the wages of the Bank of England boss. Pay restraint does not appear to apply to bosses of any of the big banks.”
Bailey was paid £575,538, including pension, last year. Ann Francke, chief executive of the Chartered Management Institute, said the size of his pay packet “makes him seem rather removed from the pressures most employees are facing”.
She added there were other ways to address inflation. “Would he tell employers not to increase prices despite their costs going up? If not, why ever should he ask employees to accept a significant decline in their living standards?”
Julian Jessop, fellow at the Institute of Economic Affairs, a free market think-tank, queried Bailey’s grip on economics. “People should ask for the biggest pay rise they can get: wages are a relative price, like any other, and should be left to the markets,” he wrote on Twitter.
Kitty Ussher, chief economist at the Institute of Directors, said this was “an issue for organisations to decide themselves — the best way for the government to reduce the wage bill right now would be through scrapping the forthcoming jobs tax, which we know is of itself inflationary.”
Bosses say they are under pressure to increase pay to retain and attract staff because of labour shortages caused by the combination of Brexit, Covid-19 absences and a lack of suitable candidates for skilled roles.
Wage increases are occurring across the UK economy, from hospitality roles in bars and restaurants to the best paid City roles among law firms and accountants.
Kate Nicholls, head of UKHospitality, said there needed to be “a labour market strategy to ease that pressure cooker and allow parts of the economy to fulfil demand and recover more rapidly by providing them with access to the labour they need”.
BoE forecasts showing that real post-tax incomes will drop sharply in 2022, and by more than any year since at least 1990, will not please Downing Street.
However, Johnson’s plea last October for a high-wage, high-skill, high-productivity economy is more an ambition. Productivity growth in the UK has had its worst decade since the 1920s, with successive governments since 2008 struggling to find a solution.