As the Prime Minister pointed out this morning, the looming recession and rising inflation are not unique British problems – although the UK economy is currently slowing faster than many of our competitors in rich countries.
In the United States, for example, former IMF chief economist Ken Rogoff warned today that the official Federal Reserve interest rate may need to reach 5% to curb rampant inflation.
Which is one of the reasons why I was not disappointed when the Prime Minister told Susan Reed on ITV’s Good Morning Britain that he was reluctant to increase universal credit and benefits and protect poorer people from devastation. of inflation, because it would inflame inflation and force the Bank of England to raise interest rates.
The point is that it is very unlikely that if Rishi Sunak had increased benefits by more than the negligible 3% he announced – compared to projected inflation of perhaps 9% or 10% – this would have added a devastating boost to the UK’s inflationary spiral. , i.e. that the Bank of England will raise interest rates by more than it is likely to do anyway.
But even if the prime minister is right, imposing benefits at a faster rate of inflation would exacerbate the unexpected rise in prices – an opinion several economists would support – a very important question arises.
If the Prime Minister wants to impose what was formerly known as income policy – the income ceiling – why should it apply only to those of aid and universal credit, why should it apply only to the poorest people?
If he and Margaret Thatcher’s party have turned to the idea that limiting wage increases is the most effective way to curb inflation, if they think we need to go back to the kind of income control we last saw in the 1970s, In those years of the last century, why didn’t the Prime Minister legislate ban high salary increases for everyone, especially those at the top of the income spectrum?
Has he not noticed that wage increases in parts of the private sector are what fuel inflation, not consumer spending from single-parent families and people with disabilities?
And something else. Boris Johnson was told that if benefits increase in line with inflation, it will directly lead to high mortgage payments.
As I said, this is in question. But even if Johnson does something, these higher mortgage payments are neither here nor there for millions of people on benefits and universal credit – because they don’t own their own homes.
So he essentially says that the income of the poorest must be suppressed in order to protect the disposable income of homeowners. Which seems a slightly eccentric policy for a prime minister who calls himself a Tory of a nation – and is the exact opposite of his favorite “leveling”.
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