A prominent economist warned last night that the Bank of England may have no choice but to ‘create a recession’ in order to lower inflation.
As the economy looks to be deteriorating, Paul Johnson, head of the Institute for Fiscal Studies, believes that extreme measures may be necessary.
It occurred as Gordon Brown predicted that Chancellor Rishi Sunak will be compelled to abandon his proposed company tax hike this summer.
Fuel tax hikes would also have to be scrapped, according to the former prime minister, in order to keep inflation from rising any higher.
Fuel tax hikes would also have to be scrapped, according to the former prime minister, in order to keep inflation from rising any higher.
‘It appears like we’re already in a phase of negative growth,’ Mr Johnson said on Times Radio yesterday. And I believe the Bank will have to make the difficult decision – and this is why they are independent – that we may have to induce a recession in order to get inflation out of the economy.’
‘I believe there are two very crucial aspects here,’ the economist stated in response to worries over salary increases in the public sector. One is that energy prices have risen, there has been a global economic shock, and we have become poorer as a country. As a result, the real question is how that misery will be spread.
‘I think the danger is everyone gets high pay rises right across the economy, then the pain will come through higher unemployment, and higher inflation for a long period of time.
‘The other thing it’s really important to say is the Government has actually spent a huge amount of money this year supporting people’s living standards: £400 off energy bills, £150 off council tax bills and National Insurance costs, £650 pounds for people on means tested benefits, and so on.
‘So actually, in terms of maintaining people’s living standards this year, they don’t actually need for this year to get a fully inflation protected pay rise because the level, particularly for people on modest incomes, of government support is really outside of Covid pretty much unprecedented.’
‘It appears like we’re already in a period of negative growth,’ Mr Johnson told Times Radio yesterday. And I believe the Bank will have to make the difficult decision that, in order to get inflation out of the economy, we may have to cause a recession, which is why they are independent.’
‘I believe there are two very crucial aspects here,’ the economist remarked, when asked about worries over public sector salary hikes. One is that energy prices have risen, there has been a global economic downturn, and we have become poorer as a country. As a result, the real question is how that grief will be shared.
He added: ‘I see millions of families in poverty and millions of children going to school ill-clad and hungry, people unable to afford to put up their heating. Something has got to be done about this and it has to be done in a far fairer way than the previous three Budgets.’
Asked about pledged income tax cuts, Mr Brown said: ‘The Government has got a problem because they’re promising income tax cuts at the same time as they’re promising better public services. They’re going to have to be honest with the public about what can be afforded.’
Mr Brown would not say what level of pay rise should be given to workers in the public sector but argued it should be set out over three years. He also floated the idea of a ‘cap on executive pay’.
Mr Brown added that Boris Johnson needs to force global action to deal with inflation and food shortages instead of lurching from ‘crisis to crisis’.
He said ‘any sensible government’ would be trying to get world leaders round the table to deal with the impending economic crisis and creating a plan for growth.
Mr Brown, who was in No 10 at the time of the 2008 financial crash, said world leaders ‘should concoct a plan’ to bring down oil prices, get food supplies running and impose controls on inflation.
Asked about Labour’s own plan for growth and accusations that Labour leader Sir Keir Starmer was not catching the public’s attention, Mr Brown said his successor should ‘ignore this’.
‘Because what’s exciting about Keir Starmer’s leadership is that he will have a plan for growth,’ he said. ‘I don’t think politicians need to be making outrageous statements, they need to get people talking.’