We must not bow to the strikers, says Treasury
Giving in to pay demands will lead to more walkouts and make inflation worse, it warns
THE Treasury has warned against giving in to strikers’ pay demands, amid fears it would fuel inflation.
From Tuesday, more than 40,000 rail workers will walk out, crippling Britain’s transport network and threatening GCSE and A-level exams as well as hospital appointments.
Mick Lynch, the general secretary of the National Union of Rail, Maritime and Transport Workers (RMT), has said he will not back down until workers are given a pay rise large enough to match price rises.
But last night, Simon Clarke, the Chief Secretary to the Treasury, warned that “unrealistic expectations around pay” would worsen the inflation crisis. Inflation is already running at a 40-year high, and the Bank of England was this week forced to revise up its inflation prediction for the year to 11 per cent.
Mr Clarke said: “We have to be very careful at this point about preventing inflation from becoming a self-fulfilling prophecy. And this is what the Chancellor and I are obviously very keenly focused on in the Treasury: that we want to make sure that everyone understands that we need to help people with the cost of living, and that some of the answer to that is pay.
“But what we can’t do is have unrealistic expectations around pay, which do, in turn, prolong and intensify this inflation problem, because we all want it to end. And the way it will end soonest is if we are sensible about pay.”
The Treasury is concerned that a successful strike by the RMT could encourage other unions to take industrial action, driving inflation higher and putting pressure on public sector budgets.
Boris Johnson is being urged by Tory backbenchers not to give in to the strikers, and to cut taxes rather than increase wages to help with the cost of living.
It comes as two crunch by-elections are set to take place in Wakefield and in Tiverton and Honiton on Thursday, with Tory strategists expecting the party to lose both seats amid the cost of living crisis.
Local authorities have already begun to succumb to union pressure, with refuse workers in Sussex awarded a pay increase of between 24 per cent and 27 per cent, those in Croydon handed 8.5 per cent and a one-off bonus of £750, and Rugby borough council giving a 12 per cent pay rise to workers.
The Bank of England’s chief economist yesterday warned that it may be forced to raise interest rates by half a percentage point for the first time since gaining independence in 1997 if there are signs that inflation is becoming embedded. Huw Pill told Bloomberg TV: “If we see greater evidence that the current high level of inflation is becoming embedded in pricing behaviour by firms, in wage setting behaviour by firms and workers, then that will be the trigger for this more aggressive action.”
Kevin Hollinrake, who sits on the Treasury select committee, called on Mr Johnson to “step in to provide shortterm measures that are more effective and appropriate” than pay rises.
“We will have to show restraint on pay because the people who are hurt the most by inflation are the very poorest,” he said.
John Redwood, a former Cabinet minister, said: “You have to fight inflation and slow down recession at the same time, but the way you do that is with tax cuts.
“I’ve always recommended that where you are giving money back to people, you do it by cutting taxes, like VAT on fuel, so you are achieving two aims at the same time. They need to look again at how they can have limited interventions on the tax burden.”
Yesterday, Mr Johnson’s closest aides summoned 30 ministerial advisers to No10 to stress the importance of not
“backing down” on the rail strikes. David Canzini, the Prime Minister’s deputy chief of staff, and Guto Harri, his communications chief, told staff they must “show message discipline” and back Grant Shapps, the Transport Secretary. “This is going to be hairy, and it’s going to run on for a while,” Mr Canzini reportedly said, warning advisers not to undermine the Government’s position on strikes.
Mr Johnson’s official spokesman yesterday ruled out any last-minute intervention from Downing Street over the strikes, following calls for action from Labour. “We are not the employer here and we can’t intervene in negotiations between rail companies and the unions,” the spokesman said.
“But ultimately what we would like to see is the unions call off their strikes [and] get back round the table with the rail companies.”
Mr Lynch said: “Negotiations will continue and we will aim to reach a negotiated settlement. But this cannot happen until there is a pay offer that reflects the cost-of-living crisis and a commitment to no compulsory redundancies.”