Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Boris Johnson tells workers to accept pay cuts or UK faces 1970s–style ‘stagflation’

Prime minister blames Ukraine war for U-turn on promise to create a high-wage economy

Rob Merrick
Deputy Political Editor
Friday 10 June 2022 06:43 BST
Comments
Boris Johnson confirms plans to extend Right to Buy scheme targeting 2.5 million households

Your support helps us to tell the story

This election is still a dead heat, according to most polls. In a fight with such wafer-thin margins, we need reporters on the ground talking to the people Trump and Harris are courting. Your support allows us to keep sending journalists to the story.

The Independent is trusted by 27 million Americans from across the entire political spectrum every month. Unlike many other quality news outlets, we choose not to lock you out of our reporting and analysis with paywalls. But quality journalism must still be paid for.

Help us keep bring these critical stories to light. Your support makes all the difference.

Workers will have to settle for real-terms pay cuts if Britain is to avoid 1970s-style “stagflation” and soaring interest rates, Boris Johnson has warned.

In a major speech, the prime minister performed a startling U-turn on a promise – made just months ago – to create a high-wage economy, instead highlighting the pain to come from rising inflation.

“We cannot fix the increase in the cost of living just by increasing wages to match the surge in prices,” Mr Johnson said, in a speech billed as the latest reset of his troubled premiership.

He said: “If wages continually chase the increase in prices, then we risk a wage-price spiral such as this country experienced in the 1970s. Stagflation – that is inflation combined with stagnant economic growth.

“When a wage-price spiral begins, there is only one cure and that is to slam the brakes on rising prices with higher interest rates.

“That has an immediate impact on mortgages and rents. It puts up the cost of borrowing for business, it is bad for investment and growth, it is bad for jobs – it is bad for everyone.”

The prime minister blamed the Ukraine war for having “brutally interrupted” the bounce back from Covid, also dashing hopes of early tax cuts or higher spending to help struggling families.

He pointed to “the risk of borrowing too much”, telling his audience in Blackpool: “When you face inflationary pressure, you can’t just spend your way out of it.

“On the contrary, you have to be careful not to add to inflationary pressure. We are constrained in what we can do.”

The deputy general secretary of the TUC angrily dismissed the call for wage cuts as “nonsense”, arguing that only pay rises could provide “financial security”.

“It hasn’t taken long for the prime minister to abandon his commitment to a high-wage economy,” Paul Nowak said.

“British workers are suffering the longest wage squeeze in more than 200 years. They urgently need more money in their pockets.”

The prime minister’s call comes just weeks after No 10 slapped down Andrew Bailey, the governor of the Bank of England, for saying workers must accept pay curbs to help control inflation.

Mr Johnson described the purpose of the speech as highlighting that “price pressures are going to make things tough for a while, but we will get through it”.

But, beyond widely criticised ideas to boost home ownership, it contained no other new measures beyond a hint that tariffs will be removed on imported foods such as olive oil and bananas.

Mr Johnson appeared to dismiss a suggestion that he is planning a 2p pre-election income tax cut – and ducked two opportunities to get tough with firms refusing to pass on fuel duty cuts at the pumps.

Asked why the UK has plunged to the bottom of the world’s economic growth league table, he argued the UK ‘came out” of Covid first, which meant it is “slightly out of sync” with other economies.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in