Jeremy Hunt has warned trade unions not to jeopardise Britain’s recovery, saying that high pay demands will hit the fight against inflation and harm the workers they are trying to protect.
In an interview with the Financial Times, the UK chancellor did not deny that ministers had blocked a potential 10 per cent pay offer to rail workers spread over two years; a subsequent 8 per cent offer was immediately rejected by the RMT union.
Speaking at the launch of a package of financial services reforms in Edinburgh, Hunt said he was “more confident” than many others about the prospects for the economy, but that controlling inflation was critical for any recovery from the recession.
He said the independent Office for Budget Responsibility thought inflation would fall to 3.7 per cent in the first part of 2024, down from October’s 11.1 per cent.
But he warned that this “very dramatic” fall in inflation could be jeopardised unless unions, especially in public services, moderated their pay demands.
The country is braced for a winter of strikes over pay and Hunt said Number 10, the Treasury and all government departments agreed on the need to keep pay rises under control.
“If we make the wrong choices now, we won’t have that 3.7 per cent of inflation in January or February of 2024 and this will change from being a one-off problem to being a permanent problem,” Hunt said.
“We just have to be really careful not to agree to pay demands that have the opposite of the intended effect because they lock in high inflation.”
Ministers’ claim that higher pay for public sector workers would fuel inflation is contested by economists. They argue that with pay already growing faster in the private sector, public sector wage deals do not set any precedent — and that ministers should set pay at a level that allows the public sector to recruit, leaving the Bank of England to manage inflation.
Royal Mail staff on Friday began a further six days of industrial action while next week there are four more days of railway strikes. Airport border staff, NHS staff and civil servants have also voted to strike as the UK faces its worst industrial unrest in more than three decades. Prime minister Rishi Sunak has pledged “new tough laws” to restrict strikes in key public services.
Hunt was speaking as he announced a relaxation of City regulation to attract investment and underpin Britain’s recovery. He said his package of more than 30 reforms to financial services regulation would help make Britain “competitive, exciting, the place to be and the place to invest”.
He insisted that although Britain was forecast to be in recession for the whole of 2023, falling inflation would help see growth projected to return to “pretty healthy levels” of 2-3 per cent a year.
“I’m more confident about the next year economically than some others,” he told the FT’s Global Boardroom webinar. “There is a robustness underlying Britain’s economy.”
Hunt’s “Edinburgh Reforms”, launched in the Scottish capital, were broadly welcomed by the financial services sector but Labour claimed they represented “a race to the bottom” and would make the City riskier.
The chancellor rejected the claim that he was increasing risk by diluting or scrapping rules put in place after the 2008 crash, such as the cap on bankers’ bonuses and the “ringfencing” of risky investment banking.
“We have to make sure we do not unlearn the lessons of 2008,” he said, but added that it was “perfectly sensible to make pragmatic change” to make sure the sector had agile and proportionate rules.
The chancellor hoped his financial reforms would release “billions” of pounds — currently held in capital buffers — for investment in green technology and to help Britain become a European “Silicon Valley”.
But he accepted that the package of reforms, originally badged “Big Bang 2.0” by his predecessor Kwasi Kwarteng, would be more “modest” than the original 1986 City reforms overseen by Tory chancellor Nigel Lawson.
“It would be wrong to say this is of the same scale as what Nigel Lawson did in 1986 but I think it is pretty significant and it shows that the UK is being nimble in constantly changing global markets,” he said.
City executives applauded the government plans but warned that ministers needed to act quickly to implement the proposals or risk losing out to financial centres in the EU and US.
Additional reporting by Delphine Strauss