Blowing in the wind Sunak’s latest about-turn shows shocking ignorance of what voters actually want: more tur

In Scotland, the teachers are striking for a 10pc pay rise. The rail workers have already turned down an 8pc increase and will bring the network to a standstill over Christmas. The nurses are demanding a 17pc rise and will stage their first strike unless the Government gives in. Even in the private sector we have seen threats of walkouts at Amazon warehouses and from the postal workers over demands for higher wages. This Christmas is already turning chaotic as employees insist on pay rises that match or beat inflation.

It is perfectly understandable. No one wants to take a cut in their real wages, and the soaring cost of basic goods and services means it is a struggle for many families to make ends meet. And yet we are also on the edge of the most dreaded phrase in the economics textbooks. A wage-price spiral. Pay starts to rise and companies raise prices to meet that, sparking another round of pay demands and more price rises, and eventually the cycle spirals out of control and inflation runs rampant. It looks as if that has already started – and neither the Government nor the Bank of England appear willing to do anything to stop it.

In the admittedly unlikely event that anyone has any money left after paying their energy bills, their taxes and getting the grocery shopping, there may not be much to spend it on over the next few months. Britain is about to be hit by a wave of strikes the likes of which we have not witnessed for more than three decades. Teachers, nurses, rail workers, postal staff and university lecturers are all taking industrial action over the next few weeks.

Over the latest quarter the UK lost half a million working days because of strike action, according to the Office for National Statistics, the highest level in more than a decade. And that is before the latest wave is added into the total. Once it is all totted up, 2022 will be a record-busting year for industrial action and 2023 is not looking any better.

With inflation running at 11pc, workers are insisting on pay rises that at least preserve their standard of living. A 2pc or 3pc rise when everything costs 10pc more is a cut in your salary – that will inevitably hurt. We may be seeing the bulk of the strikes in the public sector because that is where the unions are most powerful these days. But we should not kid ourselves that inflation-matching wage rises are restricted to state, or quasistate, employees.

The latest data show overall pay rising by 6pc annually, as many private companies decide they need to offer their people at least a pay rise that matches the rise in prices. Sometimes that is dressed up as a cost of living bonus, such as the £1,000 Lloyds Bank offered to all its employees, or the £1,200 offered by Nationwide Building Society, but it is still in effect an inflation-matching pay rise and one

that will have to be financed somehow. Put it all together and it is very clear that pay growth is starting to accelerate dramatically.

No one should blame the unions for looking after their members. It is what they exist for. Likewise, no one would blame executives for protecting the living standards of their staff, so long as the balance sheet can take the strain. But here is the problem. As so often, decisions that make perfect sense at the individual level can add up to a catastrophe when everyone is doing the same thing.

In reality, a wage-price spiral may already have started. Here’s how it works. Once wages start to accelerate, companies have to raise their prices to preserve their profit margins and sometimes simply to survive. And then workers demand bigger pay rises to compensate for a higher cost of living. And so prices have to be raised again. It goes round and round, and it keeps on accelerating, until eventually you end up with hyper-inflation.

Britain in the 1970s was the classic example. In 1975, wages rose 29pc and prices soon afterwards by 25pc. True, there are differences between the 2020s and the 1970s. The unions are far less powerful than they were then and are mainly concentrated in the public sector, or in state-supported industries such as the railways. But against that there are also huge labour shortages and many sectors have such stretched supply lines, and depend so critically on just-in-time delivery systems, that they are acutely vulnerable to wildcat strikes – unofficial demands for higher wages from their workers.

If we think we are immune to a wage-price spiral simply because we don’t have a highly unionised, heavy industry-based economy any more we are probably deluding ourselves. It has happened before and right now it looks like it is happening again. How bad will that prove? The answer, unfortunately, is very. Once a wageprice spiral gets going it is incredibly hard to stop. Interest rates have to be raised to eye-watering levels, typically creating mass unemployment and a crushing recession, to bring it back under control.

In truth, both the Government and the Bank of England should be doing far more to prevent the spiral running out of control. How? The Bank should be making it absolutely clear that it will do whatever it takes to keep price rises, and wage rises as well, under control, even if that means some pain on interest rates over the year ahead.

The Government should be sending ministers out to make speeches about how dangerous inflation is and how it would be better for everyone to show some restraint now. They both need to demonstrate some leadership, instead of meekly hoping that everything will turn out OK. The blunt truth is that it won’t. On current trends, by the new year the UK will be in the middle of a terrifying wage-price spiral – and it will be too late for anyone to do anything about it.