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Yielding to union wage demands will lead to 1970s-style inflation, Treasury Department warns

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Yielding to union wage demands will spark a cycle of strikes that will only fuel 1970s-style inflation, the Treasury Department warns: Cost of living fears mount as ministers tell bosses that they should think twice before giving the staff high pay increases

  • Simon Clarke said salary increases to offset the cost of living created an ‘inflationary spiral’
  • The Bank of England has forecast inflation to exceed 11 percent in October
  • Chief Secretary to the Treasury urged bosses not to set unrealistic expectations

The government has warned of wage hikes for striking railway workers, arguing that it could trigger a series of other industrial actions and fuel 1970s-style inflation.

Some 40,000 workers are expected to leave the country as of Tuesday, causing the country’s transport links to be shaken up.

Mick Lynch, general secretary of the National Union of Rail, Maritime and Transport Workers (RMT), is refusing to change his position unless workers get a pay raise enough to offset the cost of living.

But workers have been told not to expect major wage increases as they will push prices even further, a senior minister insisted last night.

Simon Clarke, Chief Secretary to the Treasury, said salary increases to offset the rising cost of living triggered a 1970s-style ‘inflationary spiral’.

The Bank of England has forecast inflation — which is at its 40-year high of 9 percent — to exceed 11 percent in October.

Workers shouldn’t expect big wage increases as they will push prices even further, the Treasury’s chief secretary, Simon Clarke, said last night, as it threatened a ’70s-style inflationary spiral’. Clarke is pictured with Rishi Sunak during a visit to the University of Leeds in March 2020

Train commuters prepare for days of disruption next week as the RMT plans industrial action (Pictured: long queues at Euston station)

Train commuters prepare for days of disruption next week as the RMT plans industrial action (Pictured: long queues at Euston station)

The public sector pay review agencies — which recommend salaries for about 5.7 million workers, including teachers, nurses and police officers — will report in the coming weeks.

Mr Clarke, deputy to Chancellor Rishi Sunak, last night gave the clearest indication yet that workers will not receive settlements close to inflation, saying: ‘There is no automatism, if you will, between inflation and wage determination. ‘

Mr Clarke said wage review bodies ‘need to be aware if we get into a world where we say all settlements try to match or even exceed inflation’.

He added: ‘Then we actually create the conditions that make those expectations ingrained and self-fulfilling, that’s the risk.

“We have to be very careful not to, as I said, fuel an inflation spiral in a way that is actually to the detriment of everyone. It will make it run away from us – that’s what the governments of the 1970s failed to address and what we need to avoid in the 1920s.’

Unions last night argued that it is “energy prices that are driving inflation, not wages.”

Paul Nowak, deputy general secretary of the Trade Union Congress (TUC), said Mr Clarke’s claims were “nonsense”. He told the BBC: ‘The government has cynically relinquished its commitment to a high-wage economy.

“The only way to provide long-term financial security for families is to increase wages across the economy. British workers are facing the longest wage gap in more than 200 years.”

Ministers have prepared the public for further economic pain, with inflation and interest rates set to continue rising for the rest of the year.

Leveling Minister Michael Gove warned this week that households are going through ‘tough times’, but the government cannot help everyone. He appeared to be encouraging the Bank of England to continue raising interest rates, which were raised to 1.25 percent on Thursday.

Experts fear they could reach 3.5 percent by the end of 2023.

Mr Gove said he agreed with Mr Sunak that tax cuts should be suspended until inflation has fallen. Asked if that would have to wait until 2024, he told TalkTV: “The chancellor has the right policies… He can’t spend all the public money that many would like and that we would have in a perfect world. with pleasure.’

Last month, Andrew Bailey, head of the Bank of England, came under fire for £575,000 a year for saying workers should ‘think and think’ before asking for ‘big raises’.

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