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26 June 2023

Sunak’s inflation bind

In trying to reshape the political narrative over pay rises, the Prime Minister risks looking dishonest.

By Freddie Hayward

Economic woes continue to define Rishi Sunak’s time in office. Last week, three announcements underlined the problems facing the government: the Bank of England raised interest rates, the Office for National Statistics announced national debt was greater than GDP, and we learned that core inflation – which takes out the prices for more volatile commodities such as fuel – is on the rise. Voters are not sanguine. Four in ten think their personal finances over the next year will get worse.

On the media round yesterday (25 June), the Prime Minister let his frustration with the situation show. He struggled to appear empathetic when pressed by the BBC’s Laura Kuenssberg to admit that higher interest rates will be painful for many. All is fair in the war against inflation, Sunak argued. He said he fully supported the Bank’s decision to raise rates and argued the government’s complementary job was to manage borrowing.

In doing so, he sought to move the political debate on to which party would be best-placed to bring down inflation. He criticised Labour’s green-investment policy and acceptance of the recommendations from independent pay review bodies – for around a 6 per cent rise for teachers, police officers, prison officers and junior doctors – as contributing to the problem. (Over the weekend, Rachel Reeves wouldn’t confirm whether Labour would accept them.) Indeed, the Times has reported that the government might reject the recommendations. “When it comes to public-sector pay I’m going to do what I think is affordable, what I think is responsible,” Sunak told Kuenssberg.

This strategy is tricky for the PM for three reasons. First, it increases the likelihood that public-sector workers go on strike, thereby crippling services. Second, it exposes the government to the criticism that low pay is driving key staff away. This is particularly risky in a week when the government is launching its NHS workforce plan, which aims to address chronic understaffing. Third, the government spent much of last year using the independent pay review process to defend below-inflation pay raises and now it wants to circumvent that very process, which will invite accusations of dishonesty. Sunak is in a bind, and he’s struggling to escape.

This piece first appeared in the Morning Call newsletter; subscribe to it on Substack here.

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[See also: Rishi Sunak pledge tracker: Is the PM now regretting his promises?]

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