The head of England’s central bank caused an uproar Friday after he told workers that, despite skyrocketing energy bills, rising food and goods prices, and a looming payroll tax hike, they shouldn’t ask for a big pay rise because that would just make inflation worse.
“We are looking to see quite clear restraint in the bargaining process because otherwise, it will get out of control,” Bank of England governor Andrew Bailey said in an interview with BBC Radio 4 Friday. “I’m not saying nobody gets a pay rise, don’t get me wrong, but I think, what I’m saying is, we do need to see restraint in pay bargaining.”
Asked if the bank was asking workers not to demand big pay rises, he responded, “Broadly, yes.”
“That is painful. I don’t want to in any sense sugar that message. It is painful. But we need to see that in order to get through this problem more quickly,” he said. Bailey noted a week earlier that if inflation spiraled out of control, it would only make things worse for people who aren’t able to bargain on their wages, which many people can’t.
The comments quickly fueled an uproar on social media, with many pointing at his comfortable £575,000 ($780,000) a year salary including pension and benefits—or more than 18 times the national median—and accusing him of being, well, out of touch.
If Bailey’s comments weren’t out of touch, they certainly were poorly timed. British households are about to be hit by the worst squeeze on their income in decades, as their energy bills are expected to surge by almost £700 ($950) in April. The government’s Chancellor of the Exchequer, Rishi Sunak, granted an aid package of £9 billion, which will cover about half the increase in energy costs. The opposition Labour government proposed a tax on the surging profits of oil and gas companies, which posted healthy earnings after a two-year slump, to cover the increase.
Others look at a worrying future.
Inflation and inequality
The Bank of England revealed on Thursday it expects inflation to top 7% in the coming months—a rate not seen since the ’90s, after the fall of the Soviet Union and an oil price shock. As a result the Bank of England responded with its first back-to-back rate increases since 2004, with the second, on Thursday, increasing interest rates from 0.25% to 0.5%.
Rising inflation results in paychecks shrinking in real terms. While workers in the U.S. are expected to see a wage rise of 3.9% in 2022, the cost of goods and services jumped 6.2% over the past year, according to the latest report from U.S. Bureau of Labor Statistics.
In the U.K. it’s actually worse, with pay rises expected to climb to 3.2% in 2022, according to research by advisory firm Willis Towers Watson, which would count as a pay cut when paired with an inflation rate of 7.25%.
The pay bump over the past year was also distributed unequally, according to Pew Research Center analysis of government data. Since the pandemic hit, higher-wage workers helped to raise the U.S. median hourly wage to $23 of all employed people in the second quarter of 2020. However, taking into account the number of people who became unemployed, which included many in the lower-income bracket, the median wage of all workers remained unchanged at about $20 per hour, the study found.
Higher inflation also impacts lower-income people more as they are more exposed to price hikes in energy, food, and gasoline. In the U.K., the country’s Office for National Statistics has pledged to break down inflation figures for different income groups, in detailed “experimental statistics” for the consumer prices index.
Never miss a story: Follow your favorite topics and authors to get a personalized email with the journalism that matters most to you.
