MPs warns of ‘wage-price spiral’ if workers demand higher pay
MPs has raised the spectre of a 1970s-style “wage-price spiral” that could force the Bank of England to push up interest rates dramatically if workers demand to be compensated for rocketing prices.
Instead the prime minister promised a return to lowering taxes, cutting government spending and slashing regulation, after a renewed push by backbench Conservative MPs.
In the speech in Blackpool on Thursday, billed as a reset of his premiership after MPs forced a bruising no-confidence vote in his leadership, Johnson said the current tax burden was an “aberration” and the state must reduce its spending.
It came as Conservative MPs prepared to formally launch a tax-cutting lobbying group, which some Tories claimed had already influenced the prime minister’s speech.
MPs who are promoting the renewal of the Thatcherite lobbying group, Conservative Way Forward, said key talking points from its pre-launch memo had influenced Johnson’s warnings on “tax and spend”.
The memo, drafted by key Johnson critic Steve Baker and leaked to the Guardian, was widely shared among MPs before conversations with Johnson in the run-up to the confidence vote on his leadership on Monday.
It says the government’s current policies were “contributing to the cost of living crisis and increasing the chance of Labour winning the next election”. Its six points urge Johnson to address the tax burden on families and business, soaring inflation, intergenerational unfairness, government borrowing and public sector debt.
In his speech, the prime minister said the government should reject what he called the “Covid mindset” that more state spending was the answer to every problem, and instead focus on cutting regulation to unleash growth.
In a nod to the pressure from his own backbenchers and within cabinet, Johnson suggested the government was considering bringing forward tax cuts, adding: “I would much rather it was sooner than later; that burden must come down.”
He said: “The answer to the current economic predicament is not more tax and more spending, the answer is economic growth.” The government had been “straining at the leash” to do “reforms that will cut costs for government, cut costs for business and cut costs for people across the country”.
As rail workers prepare to go on strike later this month, and with inflation running at 9%, Johnson claimed that if wages continued to chase prices upwards it could unleash an economic crisis.
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