Incoherent economic leadership is causing not just confusion, but institutional damage.
James Harding, narrating: Remember Boris Johnsonâ€™s hopes of a â€śhigh wage economyâ€ť.Â Last year, even as serious economists â€“ not to mention Tortoise â€“ were warning of gathering inflationary pressures, the UK prime minister didnâ€™t seem to care about pushing up pay and prices: he was promising first Conservative party conference and, then, the CBI, a future of â€śhigh skills, high wages, high productivityâ€ť. Â Not so much any more.Â The mantra now is pay restraint.Â Â
Thereâ€™ll be plenty of ink spilled this weekend about Johnsonâ€™s political troubles after losing two by-elections and one Conservative party chairman.Â (Oliver Dowdenâ€™sÂ resignation letter came without a grace note for the Prime Minister but a last line â€“ â€śI will, as always, remain loyal to the Conservative Partyâ€ť â€“ that, by Dowdenâ€™s undemonstrative standards, a bitchslap.)
But, more real to more people, is the economic mess.
Rail strikes â€“ and more to come; inflation creeping up to 11 per cent; falling sales and the increasing likelihood of a recession.Â
And, in response? Johnsonomics, a cake and eat it approach to pay and inflation, a Prime Minister whoâ€™s argued both for higher pay and lower real wages.Â Â Â Â
Iâ€™m James Harding, Editor and co-founder of Tortoise, and in this weekâ€™s Editorâ€™s Voicemail I want to talk about how incoherent economic leadership from Downing Street is causing not just confusion, but institutional damage â€“ to the Bank of England, to the courts and judges and, soon to come, to the NHS, prison service and schools.Â
Johnson and Rishi Sunakâ€™s response to inflation has been both calculating and innumerate.Â
Calculating in that theyâ€™ve shown a determination to pander to the grey vote by signalling a willingness to foot the bill if pension payments have to rise by 10 per cent next year; and calculating too in pressing their cabinet colleagues for wage restraint to preserve the hope of pre-election tax cuts.
But innumerate in that, to the public, the numbers donâ€™t add up: the Prime Minister and Chancellor seem to back pay rises for essential workers at less than half the rate of inflation, thereby suggesting a willingness to reduce the standard of living for people that all through the pandemic they were parading as heroes.Â Â
To be fair, inflation rising at this rate is not a problem anyone in Government has experienced in their working lives.
Itâ€™s caused largely by forces beyond the UK Governmentâ€™s control, i.e. the war in Ukraine, supply chain disruption, energy costs and food prices.Â And it raises borrowing costs, threatens to lower their tax receipts and limits the Treasuryâ€™s room for manoeuvre.
In other words, itâ€™s a nightmare.
Itâ€™s tempting, too, to see it as really a central bank problem.Â As I suggested last December, weâ€™d come to see the US Fed and the Bank of England as having woken up too late to the problem of inflation.
And itâ€™s possible now that the central banks are trying too hard to recover their reputations: it may be the race, again by the Fed and the Bank of England, to push up interest rates is unhelpful now, as it adds to household costs when higher energy prices are already squeezing disposable incomes and reducing demand.
Either way, Downing Street might say, managing inflation is the job of the Bank, not the Treasury.Â
But my point is about economic leadership â€“ or the absence of it.Â The Prime Minister and the Chancellor donâ€™t set interest rates, but they absolutely do have a job to steer the economy.Â
They have a responsibility to explain. To explain how people should respond to higher prices, to control inflation and to restore growth.
But, so far, they havenâ€™t.Â Their responses have been impetuous and political.Â The signals not just mixed, but contradictory.Â
And in the absence of any coherent thinking on pay â€“ or guidance to employers â€“ you get this: Mick Lynch, a media hero; Andrew Bailey, a virtue signaller; and Lord Burnett, a bully at work. And hereâ€™s what I mean.Â
- Mick Lynch, the union boss leading striking railway workers, has made a sport of skewering Conservative ministers on air, as they try to defend the governmentâ€™s inconsistent position on pay and the cost of living;
- Andrew Bailey, the Governor of the Bank of England, heâ€™s been calling for pay restraint. And he set a one per cent pay rise for Monetary Policy Committee members and he personally declined to take his annual increase in pay, which is all very well for him on ÂŁ579,000 a year, but neither of those signals of self-restraint do anything to help employers across the country who are trying to figure out what they can responsibly pay their staff to meet higher food and energy bills without ramping inflation higher for longer;
- And then thereâ€™s Lord Burnett, the Lord Chief Justice. Heâ€™s trying to intimidate criminal lawyers out of strike action, by telling judges to refer barristers to their regulators for potential professional misconduct if they donâ€™t show up next week to represent their clients in court.Â
The point is thisâ€¦ people in authority donâ€™t know what to do in the face of inflation.Â Without any sensible steer from the government, theyâ€™re not doing nothing, theyâ€™re doing everything. Politicising; gesturing; threatening.Â And itâ€™s only just begun.Â
This mess is going to spread.Â Over the coming weeks, the governmentâ€™s going to have to publish pay awards for NHS workers, prison officers, teachers and civil servants.
And without a clear explanation of the governmentâ€™s thinking, prepare for more division and distraction, more performative pay restraint and strong arm tactics.Â
Thereâ€™s no easy fix for any of this, of course.
But the approach taken by Rolls Royce, Oxford University, Lloyds, Bloomsbury and a growing number of other companies to offer a one-off cost of living bonus of ÂŁ1,000, ÂŁ2,000 or a percentage of salary surely makes some sense.
A one-off cost of living bonus doesnâ€™t bake in permanent wage increases that only further ratchet up prices, but it does help people deal with the rising cost of living in 2022.
Rishi Sunakâ€™s cost of living payment to the poorest families is, to be sure, in that spirit.Â But still, the Chancellorâ€™s message to his cabinet colleagues and the countryâ€™s CEOs remains a muddle: compassion on cost of living, of course, but pay restraint, please. Itâ€™s Johnsonomics.Â Â Â
Every time Boris Johnson isÂ in reputational trouble in recent months these days, heâ€™s reached for Vlodymyr Zelensky.Â Thatâ€™s not going to help people with their shopping.Â
Johnson may like politics and geopolitics, but thatâ€™s not whatâ€™s asked of him now. The job title is on the door at No. 10: First Lord of the Treasury.Â
Have a very good weekend.