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Is Boris taking us back to the Seventies? Inflation is snowballing; to stop it would be painful

Credit: Toby Melville-WPA Pool/Getty


October 16, 2021   7 mins

It was the summer of 1975, and for Brian Barker, life should have been good. Happily married with an eight-year-old son and a house in Waltham Cross, he worked for an industrial instruments firm, and had just been awarded a handsome 6.5% pay rise, taking his salary to a healthy £3,000 a year — the equivalent of about £46,000 today.

“It doesn’t sound too bad at all, does it?” Brian mused “You’d think we would be really comfortable on that.”

But for poor Brian, a pay rise of 6.5% wasn’t good at all. It was disastrous. As his wife told the man from the Daily Express, the housekeeping bill had gone up by a third in just a year, while they were even spending £2 a week extra on their son’s clothes.

“Then the gas bill comes in, followed by the electricity, the rates, the phone bill, and a lot of others,” said Brian disconsolately. “I am just one of thousands, I suppose, but there is no comfort in company. And I’ve given up any notion of doing any better for my family.” Then Mrs B cut in: “We used to think we were really well off. Not any more.”

Such was life in the summer of 1975, the age of Showaddywaddy, 10cc and the Bay City Rollers. Harold Wilson was PM, Tom Baker was in his time-travelling pomp, Britain had just voted to remain in the Common Market and the Space Hopper was the fashion accessory du jour — and all the time, inflation just kept rising. 24%, 25%, 26%


Today, the prospect of prices soaring at such breakneck speed seems like something from some mad fantasy. Yet inflation is back in the news, and understandably so. The Bank of England’s target is 2%; the most recent figure, for the year to August, shows inflation at 3%, and most analysts expect it to hit 4% before the end of the year.

As always, the causes are very complicated. The explosive recovery of the world economy after Covid, the global supply chain crisis, the huge surge in demand for fossil fuels, the spike in wholesale gas prices (up 250%, incredibly, since the turn of the year), the rise in shipping costs because of container shortages, the worldwide scarcity of semi-conductors, the dearth of lorry drivers, Brexit, Boris — you pays your money and takes your choice, basically.

By the standards of the Seventies, inflation of 4% doesn’t sound like much. In the summer of 1975, Britain’s Chancellor, Denis Healey, would have sobbed with joy if you had offered him an inflation rate of 14%, let alone 4%. But as Healey would also have told you, 4% can become 6% very quickly. Then consumers’ expectations kick in, and 6% becomes 8%. Wages leap to follow prices: 8% becomes 10%. And with interest rates following suit, good luck paying your mortgage.

Today, you probably have to be in your mid-sixties to remember what inflation really meant. For everybody else it’s just a word, a vague economic term from a vanished age, like the gold standard or the balance of payments deficit. But if you were of working age in mid-1970s Britain, inflation mattered. It ate into your savings, your living standards, your pension. If you belonged to a powerful trade union, which could fight for an annual pay rise on your behalf, you might be all right. But what if you didn’t?

Then as now, the causes were very complicated. Traumatised by memories of the Great Depression, desperate to avoid an economic slowdown that might revive the spectre of high unemployment, Britain’s politicians had tolerated a relatively high inflation rate for years. Slowly, inexorably it began to creep up: 6% in 1970, 9% in 1971, 7% in 1972, 9% again in 1973…

And then on 6 October 1973, the Jewish holiday of Yom Kippur, Egypt and Syria launched a sensational surprise attack on Israel. The Israelis fought back, boosted by more than 22,000 tons of American tanks, weapons and military supplies. Ten days after the start of the war, the Arab oil exporters unleashed their “oil weapon”, slashing production, raising prices by 17% and announcing an embargo on exports to the United States, the Netherlands, Portugal, South Africa and Rhodesia. And with that, energy prices went through the roof.

In Britain, where Ted Heath was already struggling to keep inflation down, the political consequences were catastrophic. When the nation’s miners walked out for the second time in two years, Heath instituted a three-day working week and called a snap election. But the result was a hung parliament, and in came Labour’s Harold Wilson to form a minority government and prime the pump for a second election.

Every other Western country tried to deflate its economy to deal with the oil shock, but not Harold Wilson’s Britain. By the spring of 1975, prices were rising five times (yes, five times) faster than in any other major European country. In 12 months, the price of sugar had gone up by 184%, carrots by 137%, electricity by 66%, tinned soup by 54%, orange squash by 51% and coal by 47%.

Today some of the details of that summer of 1975 seem almost deranged. To cut down on paper costs, publishers started producing shorter books with smaller typefaces. They gave up printing the prices on the back, using sticky labels instead. Meanwhile the trade union leaders were endlessly trooping into Downing Street, asking for new deals for their members. On 3 April the power workers won 31%; on 14 April the civil servants accepted 32%; on 18 April the doctors won 35%; on 29 April London’s dockers settled for 30%.

The extraordinary thing is that most of the union leaders themselves, who knew more about the world of work than many politicians, told Wilson’s ministers that the whole business was completely bonkers. Yet it was their job to keep asking for more. That was what their members expected. So they did.

Perhaps this makes inflation sound like a joke. It wasn’t. The costs fell most heavily on people who could ill afford it — the poorest, the elderly, those living alone — their incomes stagnant as prices rocketed. As Britain’s GDP fell two years in a row, living standards sank with it. By December 1977, the average couple took home less money, in real terms, than they had four years earlier.

It’s worth repeating that although every major Western country suffered from the ravages of inflation in the mid-Seventies, none suffered as badly as Britain. That was a political choice, not an act of God, and people knew it.

They knew it at home: Wilson’s Foreign Secretary, James Callaghan, told his colleagues he often thought that, if he were a younger man, he would emigrate. And more embarrassingly, they knew it abroad. “Britain is a tragedy,’ the US Secretary of State, Henry Kissinger, told President Gerald Ford in a conversation captured by White House transcribers. “It has sunk to begging, borrowing, stealing until North Sea oil comes in 
 That Britain has become such a scrounger is a disgrace.”

So how did they fix it? The short answer is: with great difficulty.

One of the poisonous things about inflation is that it corrodes the social fabric, driving a wedge between savers and borrowers, old and young, those represented by trade unions and those dependent on fixed incomes. Labour’s answer was the Social Contract: in very basic terms, a programme of rolling incentives (better pensions, bargaining rights and so on) to persuade the unions to accept progressively smaller pay increases.

On paper it was a pretty good idea. Slowly but surely, they would wring inflation out of the system, without the shock of harsher medicine. The only problem was that it didn’t work. By the end of 1978, Wilson’s replacement, Callaghan, had got inflation down to just under 10%. Now he demanded one more heave, a 5% pay limit that would push inflation down even further in time for the next election. But it was too much.

Instead of dampening wage pressures, the Social Contract had simply stoked the flames. Workers — especially the lowest-paid — were sick of stagnant living standards, and now their impatience boiled over. That winter, defying the government’s entreaties, millions walked out, unleashing the most devastating industrial unrest since the General Strike of 1926. Bin bags in the streets, the dead going unburied: you know the rest.

A few months later, Britain voted for Margaret Thatcher, and her answer was rather different. Gone was Mr Nice Guy, in came Nurse Ratched, determined to squeeze inflation out of the system by any means necessary. Interest rates went up, and up, and up, peaking at a truly excruciating 17% at the end of 1979.

The irony is that Mrs Thatcher loathed high interest rates, which penalised her beloved middle-class homeowners. But that’s the cruel thing about inflation: to tolerate it is bad enough, but to bring it down can feel even worse. To put it another way, lower prices — or at least, prices that are rising more slowly — come at a cost, and in the mid-Eighties the bill came to some 4 million jobs.

Was there an alternative? Well, even many of Mrs Thatcher’s own confidants thought they should have squeezed more slowly. But would it have been pain-free? No. With inflation, there’s always pain. So what are the lessons? The obvious one is boringly simple: for God’s sake, don’t let inflation creep into your system. But as Boris Johnson’s government may well find, that’s easier said than done.

The global supply chain crisis, the growing pressure on limited energy resources, the extraordinary circumstances of post-pandemic recovery and even the unanticipated consequences of Brexit are probably beyond the direct control of any national government, even the most competent. And as Ted Heath learned in 1973, a globalised economy makes you vulnerable. A butterfly flaps its wings in the Amazon, and a woman in Wolverhampton sees another chunk disappear from her savings.

So if inflation does set in, then what? Again, I suspect the answer’s boringly simple. You can try to live with it — indeed, some economists argue that a period of high inflation might be a good way of driving down our post-pandemic debt — but the risk is that 5% becomes 10%, 10% becomes 20%, and then it’s 1975 all over again and the International Monetary Fund would like a word.

Or you can try to manage it with incomes policies. But does anybody think British workers in the 2020s will readily accept government-mandated pay curbs? I don’t much fancy seeing the pavement turned into a Winter of Discontent theme park, sorry.

So that just leaves the only likely solution: ever higher interest rates, a wave of house repossessions and a government-induced recession to deflate the economy. Harsh medicine from a determined doctor, basically. Years of pain.

And can you see Boris Johnson doing that? Me neither.


Dominic Sandbrook is an author, historian and UnHerd columnist. His latest book is: Who Dares Wins: Britain, 1979-1982

dcsandbrook

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hayden eastwood
hayden eastwood
2 years ago

As someone who lived through hyperinflation in Zimbabwe, my observation is that printing money is a viable strategy for power players to remain in power.

Government here has paid for an army it can’t afford, paid for a civil service that is unproductive, and enriched itself indefinitely, all with a printing press that robs ordinary people of their money.
In this game, rich people who already own assets are largely protected because their assets are largely inflation proof.
People running businesses that make essential goods are largely immune because they adjust their prices to hedge against inflation.
The people who lose are the asset-less working and lower middle class. As a teacher in Harare in the 2000s, for example, I watched my salary fall from $150 USD/month to $30 USD/month in the space of 9 months.
During this time, going out for dinner (when you could afford to) required a sports bag full of 100 000 dollar notes, which soon became billion dollar notes, and finally, trillion dollar notes. If I recall correctly, the game ground to a halt only after the release of a 100 trillion dollar note, when members of the army refused to be paid in the currency. Government announced, over night, that USD would be legal tender the following day.
When that happened, I noticed that teachers’ salaries were roughly $1400 USD per month. Assuming that this was the underlying value of a teacher, the money printing in effect robbed $1370 USD from every teacher, every month and stole even more from the minimum wage workers ( whose income went from $8 USD/month to $170 USD/month).
When I see the money printing going on in Britain with no plan to reduce debt, I see the slow and steady creation of Zimbabwe. The strange thing is, many Brits I speak to seem to think there is something “different” about Britain, as though behaving like Zimbabwe will lead to an outcome other than Zimbabwe.

Last edited 2 years ago by hayden eastwood
Hugh Marcus
Hugh Marcus
2 years ago

Interesting reflection Hayden.

Terry Needham
Terry Needham
2 years ago

Earlier in the year I was muttering to myself that you cannot shut down the economy, close down our energy supplies, relying on cucumber juice and sunbeams to heat our homes, print money to pay the grocery bills (Okay call it QE or what ever you want – I don’t care) and expect no adverse consequences. It was the economist’s version of the perpetual motion machine, so beloved of fantasists and charlatans over the centuries. Well none of them work and Boris is toast – unfortunately so am I.

Last edited 2 years ago by Terry Needham
Paul Smithson
Paul Smithson
2 years ago

Nothing to worry about as anyone who has been paying attention knows that Klaus Schwab and his ‘friends’ have it all sorted out.

It is called ‘The Great Reset’ and it comes with a catchy slogan that you’ll hear being used by everyone from Johnson to Biden; Build Back Better.

You’ll own nothing, but you’ll be happy 🙂

But don’t mention this to anyone or they’ll call you a conspiracy theorist, even though the WEF and our politicians are all openly talking about it and have been for a long time.

So there’s no need to worry about inflation or a return to the 1970s. Problem solved.

Andrew Fisher
Andrew Fisher
2 years ago
Reply to  Paul Smithson

So you take the empty rhetoric of the utterly powerless ‘world economic forum’ talking shop SERIOUSLY?!

Paul Smithson
Paul Smithson
2 years ago
Reply to  Andrew Fisher

Looking at the political headwind of pretty much every major nation one would be naive to not realise the ever increasing influence that organisations such as the WEF, WHO, the IMF and the WBG have on our day to day lives, and our futures. This influence has increased dramatically over the last two years. These organisations are anything but ‘powerless’ and their rhetoric is anything but ’empty’.

Glyn Reed
Glyn Reed
2 years ago
Reply to  Paul Smithson

When Schwab says “you will own nothing” it is clear he is not including himself and fellow arrogant billionaires who already own pretty much of everything. They intend to own it all and we will be their serfs.

Lesley van Reenen
Lesley van Reenen
2 years ago
Reply to  Glyn Reed

That is the way of the ‘communists’ and always has been. A thin layer of elite overlords and then the rest of the rabble. Pity is that they have a huge chunk of gullible people who think they are leading the world to a more equitable future.

Pete Kirby
Pete Kirby
2 years ago

‘ Real ‘ inflation is already well above the official figures and has been for some time. Just look at the petrol, diesel and food price rises over the past few months.
We had strong Unions in the UK during the 1970’s. Other than a couple of notable exceptions, we do not have strong Unions now so workers will not be able to achieve inflationary pay rises.
Interest rates will not rise appreciably as that would put people out of their homes on to the streets and that will not be allowed to happen in this day and age. The Government will intervene as people now expect it to. We no longer live in a society where if things go wrong, the individual is responsible for themselves and are left to get on with it. The all embracing nanny State will provide.
I do not know what the answer is and I suspect that our leaders do not know either. They will bumble along and throw even more ‘ free ‘ money at the problem I suspect and people will get poorer.
As the author of the article knows, some historical knowledge is necessary in order to navigate the present. I am 51 years of age so was of primary school age during the 1970’s but I remember trash being piled up in the streets. Talking to people who went through those times as adults has always been useful. My parents were very close to handing the house keys back to the bank manager seemingly and making ends meet was extremely difficult.
The causes of the present inflationary pressures are numerous but the common denominator is the handling of the pandemic in my opinion. Shutting down the economy was never going to end well but not enough people thought beyond the panic and raised concerns about what was happening. With pretty much the entire population focussed on saving lives instead of stepping back and looking at the bigger picture, they were blind to both the obvious and less obvious consequences of such flawed thinking.
You reap what you sow. Get on with it.

rodney foy
rodney foy
2 years ago
Reply to  Pete Kirby

It would be interesting to know if countries that didn’t shut down their economies as much suffer less from inflation

Hugh Marcus
Hugh Marcus
2 years ago
Reply to  rodney foy

Perhaps a look at how Sweden is doing? The MSM won’t of course, because Sweden was an outlier when the group think of every other country was to impose lockdowns.

Graham Stull
Graham Stull
2 years ago
Reply to  Hugh Marcus

The latest forecast show, predictably, that Sweden is outperforming most of its EU peers in terms of real GDP growth, with inflation forecast to remain below the EU average.
Of course, Sweden was not entirely insulated from the effects of lockdown – as a very open and relatively small economy, it was dependent on trade with locked down partners.

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  Pete Kirby

With pretty much the entire population focussed on saving lives instead of stepping back and looking at the bigger picture,”

The covid response was never about saving lives. And it did not either.

Simon Denis
Simon Denis
2 years ago

It is typical of Johnson’s irresponsible fatuity and indolence that he should have let this happen. One might describe him as a bull in an economic china shop, except that he’s more like a cowardly elephant, so terrified of confronting the mouse called “fiscal laxity” that he charges in any direction to avoid it, doing much damage of his own in the process. Meanwhile the rodent grows and proliferates into the gnawing rats of inflation.
They say power corrupts. How true! But it also exposes. It exposes the flaws and qualities of whoever wields it. Johnson is now under the pitiless spotlight of history and will one day stand revealed as the most spineless, over promoted, under qualified coward ever to have squeezed his rump onto the prime ministerial chair. Such characters are themselves a sign of cultural morbidity and they serve as the chaotic prelude to even worse.

Ethniciodo Rodenydo
Ethniciodo Rodenydo
2 years ago
Reply to  Simon Denis

Very well said

Mike Bell
Mike Bell
2 years ago
Reply to  Simon Denis

If politics descends into a shouting-match of abuse, we will end up like the USA where no consensus can develop. Please use argument, not abusive language.

Simon Denis
Simon Denis
2 years ago
Reply to  Mike Bell

There is argument. I am not to blame if you ignore or fail to notice it; nor will I stoop to repeating myself. The points are there and if you are fair minded you will try to take them in. And the language is not “abusive”. It may be insulting, but insults, couched in decorous, formal language, are the conventional and deserved punishment of the deceitful, the treacherous, the fatuous and the weak – ie, Johnson.

robert stowells
robert stowells
2 years ago
Reply to  Simon Denis

There is a continuity and it is ridiculous to blame Boris for trends of many years. Boris got Brexit done and if he does nothing else deserves huge credit for respecting the democratic vote of 2016 when so many lunatics were screaming for the undemocratic rejection of Brexit and shamefully voted accordingly. In the last election there was only one issue and that was “democracy” and only one person standing for it and that was “Boris”.

Hugh Marcus
Hugh Marcus
2 years ago

That’s fine Robert if you believe the 2016 was a fair vote. Sadly there’s a mountain of evidence to show a load of dirty tricks & law breaking. A fair few of those involved are in various roles in Johnston’s government.
Getting Brexit done will prove his undoing.

At a time when the U.K. needed parters most it’s torched most of those relationships

No other leader in Europe or the G7 has any respect for Johnston

Allison Barrows
Allison Barrows
1 year ago
Reply to  Hugh Marcus

Dunno about that, but I’m pretty sure they know his name is Johnson.

Simon Denis
Simon Denis
2 years ago

One person? So he was impersonating Gove and Farage and Hannan and Teresa Villiers, was he? Second, whilst a man may well be praised for some fine particular action or intervention, this does not give him carte blanche to do as he pleases, without criticism, thereafter. One lonely courageous stand for Brexit does not compensate for a flock of failures, collapses, U-turns, derelictions and disappointments since. Johnson and Gove were right about two things in 16: leaving the EU and Johnson’s unfitness for high office.

Edward De Beukelaer
Edward De Beukelaer
2 years ago

mmmm, maybe ‘get brexit done’ was merely his ticket to have a nice office in 10 downing street whether he thought it was right or not…

Jeremy Bray
Jeremy Bray
2 years ago

In a global market place the market price of work can become locally disrupted if there is a sudden squeeze on supply. So gas shoots up in price as alternative energy sources are squeezed. The price of GPs go up because we have failed to train enough in the UK and the problem is exacerbated because they then become so well paid their logical course is to restrict their time working- a propensity increased by having trained a high proportion of women who are traditionally more inclined to part time working. The price of lorry drivers goes up because a cheap source of drivers is affected by Brexit and the failure to keep locally sourced drivers coming forward by failures to keep things operating properly at the DVLA. These are essentially central planning failures that inevitably arise where central planning reigns.

Peter LR
Peter LR
2 years ago

But the differences between now and then may prove significant. The unions are nowhere near as powerful since we off-shored most of our industry. There is a gig economy now which is an incentive for people to keep working rather than strike. Most large economies are printing money due to Covid. And we don’t have a Labour Government. Although at the moment I’m not confident that the present one is that different or more competent.

Jeffrey Chongsathien
Jeffrey Chongsathien
2 years ago
Reply to  Peter LR

No, they’re printing money due to debt.

Peter LR
Peter LR
2 years ago

Jeffrey, is that not because of the debt incurred covering Covid measures?

Galeti Tavas
Galeti Tavas
2 years ago
Reply to  Peter LR

“And we don’t have a Labour Government. Although at the moment I’m not confident that the present one is that different or more competent.”

They are not more competent. They both are out to some agenda which is antithetical to the well being of the citizens though – so less competent is not an issue, as they are both up to no good.

David Uzzaman
David Uzzaman
2 years ago

I lived though that period and have my own horror stories which I won’t bore you with. However we have had an equally bad situation for the last decade or so with low inflation and ridiculously low interest rates which have in combination forced up housing costs and kept hugely indebted businesses afloat. A crash landing is inevitable. Nobody learns from history because of the belief that “this time it’s different”.

Saul D
Saul D
2 years ago

Pressure towards inflation has been building across the western world, not just the UK. Governments have been printing money MMT-style and printing money means inflation. And it will be made worse by the deliberate shuttering of energy supplies in the name of green economics.
At issue is that all money represents debt in labour-value (ie work). The amount of labour value you get depends on amount of work and productivity. To value this you use a token. The token itself is not money, though the debt and the token are commonly perceived as the same (which is closer to being true with a stable currency).
Playing with the value of tokens, changes the worth of previous debts. So if your new token buys less labour-value (inflation), older debts quantified in the same tokens lose out. That is inflation kills savers and pensions. But it also destroys incentives for investment. All exchanges become short-term, panic to panic because inflation makes it stupid to hold cash or savings – everyone will want to hold commodities.
To this we have energy heading for crisis. Poor energy supply kills productivity, and adds supply-based inflation by restricting availability of a basic commodity that feeds into everything. Thus the total amount of labour-value goes down, at the same time the number of tokens are going up.
Like heroin addicts, our governments are ignoring the multiple lessons of the past (1910s, 1920s-30s, 1970s) saying “We can handle it.” Yet, at the same time, printing more and more money for mega-stimulus packages that mostly focus on nice-to-haves, ignoring basic economics.

Adam Bartlett
Adam Bartlett
2 years ago
Reply to  Saul D

Nice to see someone with a good understanding of credit theories of money. On the green economics point though, the price of clean energy has been falling rapidly for years. It’s increasingly dirty coal that needs goverment support to compete. And inflation actually incentivises certain forms of investment – it depends on the specifics.

Saul D
Saul D
2 years ago
Reply to  Adam Bartlett

If clean energy is cheaper, why are energy prices going up? With all this investment in renewables, energy prices should be falling…

rodney foy
rodney foy
2 years ago
Reply to  Saul D

I think it’s because Russia has squeezed gas volumes to Europe, which affects prices everywhere, even though Russia only supplies 1% of UK gas. Possibly, we need more renewables to not rely on gas imports, but it’s bound to be more complicated than that

Last edited 2 years ago by rodney foy
Brendan O'Leary
Brendan O'Leary
2 years ago
Reply to  Saul D

Because the success of wind and solar relies on rigging the market against gas and coal, and consequently we do not have the necessary reserves to ride through the failures of these clean/green/whatever technologies.

Thus we’re (and I include all of Europe in this, except those countries with overabundant hydro like Norway) vulnerable to a Russian squeeze this year where we wouldn’t have been ten years ago.

John O'Byrne
John O'Byrne
1 year ago

Hydro and wind both ‘failed’ in the last year or so. Brazil had to replace its Hydro with LNG as did Portugal, then the failure of wind meant Europe used what should have been its winter reserves to keep the lights on in the summer. Green energy survives on subsidies and the carbon taxation of fossil fuels. It is an insanity that combined with lock-down produced what (as I write 8 months on from this article’s original publication) was predicted – increasingly rapid inflation, probably in reality over 10% in the UK and frighteningly in the Eurozone ranging from France’s claimed 5% (Nuclear Power effect?) to Lithuania’s 20% which is why the ECB has just had a meeting in Frankfurt desperately trying to figure out how to save 19 different economies without trashing Italy and upsetting Germany.

Alan Thorpe
Alan Thorpe
2 years ago

The message is that politicians don’t solve any of our problems. They are the cause of all our problems.

Jeffrey Chongsathien
Jeffrey Chongsathien
2 years ago
Reply to  Alan Thorpe

In this case, politicians + bankers + academics.

Jonathan Andrews
Jonathan Andrews
2 years ago

Don’t forget the meeja

Brendan O'Leary
Brendan O'Leary
2 years ago

It already feels like the seventies.

Government-created stagflation, to which the only reaction they can think of is more top-down “priming the economy” and other such nonsense.

Governments don’t run the economy. All they can do is interfere in it, for better or mostly, worse.

This kind of interventionism stifles entrepreneurship and innovation, the very things that can get us out of the mess.

Not to mention the massive gamble on the inefficient energy sources of wind and solar. Funded, as we are slowly beginning to see, by the surpluses created by cheap fossil fuel energy.

William Murphy
William Murphy
2 years ago

Thanks for the trip down memory lane. Yes, I remember 1975. I joined the Civil Service and my point on the salary scale leapt from ÂŁ2,600 to ÂŁ3,500. But a one bedroom flat was around ÂŁ9,000, so the multiple of salary plus eyewatering interest rates would still have been crippling if I had bought a property then. Just wait until the interest rates go up on the ÂŁ400 billion extra which Boris has borrowed for COVID. And he borrows yet more to pay that interest.

rodney foy
rodney foy
2 years ago
Reply to  William Murphy

Government borrowing is something I don’t understand, because there isn’t a BIG BANK on Mars to borrow from. (I think it’s more like printing money. Hopefully, someone will step in to explain.)

However, it isn’t free money, and there is interest to pay, so thanks for ruining my weekend 🙂

rodney foy
rodney foy
2 years ago
Reply to  rodney foy

Saul D said further down “printing money means inflation”. Maybe I need to study economics

robert stowells
robert stowells
2 years ago
Reply to  William Murphy

As a 63 year old who entered the employment market in 1976 at the age of 19 on a very modest trainee’s wage the massive thing to me is that I see no definite parallel between those times and what we are experiencing now. In 1976 there was, at least in my own eyes, nothing amiss and as far as economics are concerned perhaps hard times but “accountable” hard times. Today I see things definitely amiss and madness prevailing with COVID lockdown for a simple moderate flu wrecking the economy all of which challenges my sense of balance and belonging in society which was never my experience back in 1976.

Last edited 2 years ago by robert stowells
Nicky Samengo-Turner
Nicky Samengo-Turner
1 year ago
Reply to  William Murphy

have a read on how international bond, government bond, and our Gilt markets work, their electronic systems, the use of hedging and derivatives.

Always understand that a Government bond is someone elses asset.

They are the backbone of your pension, they are a large part of bank’s assets and life insurance savings.

They also govern interest rates

Rob Britton
Rob Britton
2 years ago

Boris Johnson is more of an Edward Heath than a Margaret Thatcher, and I forsee the country going on the same path under Johnson as it did during Heath’s time in office.

AC Harper
AC Harper
2 years ago

I lived through those times, so control of inflation is possible, but not pleasant.
And can you see Boris Johnson doing that? Nope.
And can you see Keir Starmer doing that? If anything Labour would make things worse.

Jon Hawksley
Jon Hawksley
2 years ago

In the 70’s interest rates went up causing immediate pain to borrowers but it was less than the inflation in house prices so it ended up with a massive shift in wealth from building society savers to home owners. To day interest rates are very low and house prices are very high. Borrowers are going to feel the pain from higher interest rates with a distinct possibility that house prices will not go up and may even go down as new buyers wait.

Last edited 2 years ago by Jon Hawksley
Jacques Rossat
Jacques Rossat
2 years ago

Fantastic and long awaited column which dares to speak the real words. No, this inflation, like the others is not « temporary «, they never are, yes, all the middle and, especially, the lower classes and, especially especially, the retirees will suffer.
I’ve always been pissed off by this stupid mantra of the »nice, moderate 2% inflation », goals of all central banks, the governors of which were in knee-pants when the « real » inflation roared. And the efficient tools to tame it are as inexistent now as they were before.

Mike Doyle
Mike Doyle
2 years ago

The UK has been undershooting the 2% inflation target for a long time, and the world didn’t collapse. With respect to higher inflation, as Dominic notes, the UK was an outlier in the 1970s. He offers no evidence that we would be an outlier this time. To me this article feels like fearmongering for its own sake.

stephen archer
stephen archer
2 years ago
Reply to  Mike Doyle

If only you knew! Where have you been for the last 18 months? Just take the ÂŁ400 billion plus in one of the comments and figure how that’s going to be paid for? Inflation is the easiest way to manage the payments, and on top of all the other consequences of the pandemic mentioned in the article, everyone is in for a not so perfect storm. I remember 30% inflation when starting my first job in London in 1975 and I asked my new boss for a pay rise after 2 weeks since it had been 6 months since I received the job offer. I also remember my first mortgage in 1984 with an interest rate of 17.5% and that was not even in the UK. Just figure what an interest rate of more than 15% would do for the economy, housing market, massive personal debt and entry into the following depression? Even 5% would be enough to kick that off, and if you think inflation can easily be controlled then compare it to running to try to catch a runaway horse. The article is in fact fairly balanced and so far from fearmongering as is possible.

Last edited 2 years ago by stephen archer
John O'Byrne
John O'Byrne
1 year ago
Reply to  Mike Doyle

8 months on as I write, it is clearly a prediction, Cassandra like – ie true but unbelieved at the time.

Mike Bell
Mike Bell
2 years ago

Dominic, you seem to have missed out a vital difference between 70s and now – that Gordon Brown gave the Bank of England independence in 1997 to set interest rates and with a mandate to control inflation.
Is that not important?

John O'Byrne
John O'Byrne
1 year ago
Reply to  Mike Bell

Only in terms of public relations.

Dustshoe Richinrut
Dustshoe Richinrut
2 years ago

The age of Showaddywaddy, 10cc and the Bay City Rollers? Yes, yes, the hits just kept coming back then, didn’t they? People didn’t know 
 what to do! A blockbuster time.
If James Callaghan had decided to emigrate after all, would he have closed his eyes and put a pin on Bay City, Canada, too?

robert stowells
robert stowells
2 years ago

Sweet! Despite the doubts about whether we would ultimately be able to blockbuster out there was still a balance of reasoning as to the outcome. Not so today.
Just for luck
and just one more in case
plus
You kidding!!!!

Last edited 2 years ago by robert stowells
Brooke Walford
Brooke Walford
2 years ago

The reserve bank in Australia wants to get inflation up. When money is essentially free ie zero base rate, income from savings for retired people is also zero.Maybe these current shortages and other shocks to the global economic system are just what’s needed.

Brendan O'Leary
Brendan O'Leary
2 years ago
Reply to  Brooke Walford

Sure it’s what’s needed but won’t be without pain and nobody in power wants to grasp the nettle.

Franz Von Peppercorn
Franz Von Peppercorn
2 years ago

This inflation is temporary. It’s not the 70s.

Ian Stewart
Ian Stewart
2 years ago

A wee bit premature Dominic, and you’re as bad as the MSM media scaremongering about petrol, drivers and turkeys.

Snake Oil Cat
Snake Oil Cat
2 years ago

At least in the 1970s we had the freedom to emigrate to Europe and get a job there. Even if we had to make do with a Sealink ferry.

Lesley van Reenen
Lesley van Reenen
2 years ago
Reply to  Snake Oil Cat

Can you not emigrate to Europe now?

Brendan O'Leary
Brendan O'Leary
2 years ago
Reply to  Snake Oil Cat

You can emigrate to Europe. You just need a visa, like the millions of Brits who emigrated to Australia, NZ, USA and Canada did. Do you think nobody emigrated to Europe before the EU?

Brendan O'Leary
Brendan O'Leary
2 years ago

And you can still go by Chunnel, which was set up by the bilateral Canterbury Treaty between UK and France many years before Maastricht and the EU.https://en.m.wikipedia.org/wiki/Treaty_of_Canterbury_(1986)

Adam Bartlett
Adam Bartlett
2 years ago

Reading this sort of “analyses” drives home how lucky we are to have Boris at no 10.  The essay here is excellent until the last few paragraphs where there’s a strong implication that the ideal policy response is to go in hard & early on income control. Such a policy would be a disaster for the working class, and even many in the struggling middle.

Our current situation is different in many ways to the 70s. As the essay suggests, the forces exerting price pressure are more globalised. Blocking desperately needed pay rises for nurses, service workers and even lower middle class jobs would be causing pain for nothing. (I’d agree with free marketers / inflation hawks that some of the blame for the global supply chain policy can be assigned to excessive monetary policy. Lacking a statesman like Gordon Brown, it’s understandable the worlds policy makers didn’t gauge the fiscal / monetary balance as well as they did for the 2008 crisis.)

Another big difference with the 70s is that back then workers were enjoying a historically high share of the overall economic pie as opposed to capital. After decades of excessively free market policy (even admittedly under Blair) workers, at least the ones without highly marketable skills, are now receiving too little.

I don’t currently have access to the best economic indicators so I’m not sure if the best response to the apparent inflation threat is to do nothing, address supply side factors, introduce limited price controls , or take measure that target wealth & not income other than CGT & perhaps the unconsciously low top rate. But I am confident Boris will know the right thing to do. Whether he can stand firm against pressure from his free market wing is another matter (he didn’t with the NI rise, his personal preference was said to be to raise that revenue in a more progressive fashion). But he does seem to get his way quite often, and at least with Boris in place one knows there is a good chance of the Tories doing the right thing.

Paul Smithson
Paul Smithson
2 years ago
Reply to  Adam Bartlett

I admire your optimism regarding Johnson. Alas, I don’t have any such confidence in his abilities.

In the distant past he may have had courage and intellect (both debatable of course), but over the last year or more he seems to pander to pressure and be more concerned with being liked than doing what is right.

And to compound the problem his new wife seems to have a power over him that has transformed him from a Conservative into being more like a leader of the Green Party.

There’s nothing wrong with having a concern for the environment and putting realistic plans in place (emphasis on the word ‘realistic’), but at this moment in time there are other major issues that desperately need attention, and a focus on the wrong thing right now could destroy this country for many generations to come, maybe beyond repair, and then any environmental goals would become just pipe dreams, which isn’t good for the long term lives of future generations.

Snake Oil Cat
Snake Oil Cat
2 years ago
Reply to  Paul Smithson

The Green Party believes in EU free movement. It is not racist.

robert stowells
robert stowells
2 years ago
Reply to  Paul Smithson

In my view there have only been 2 significant political events since Boris took office.  One was Brexit which he got done. Halleluiah! The other was COVID. Initially I thought Boris was going to stand firm on a “herd immunity” approach but that quickly imploded to adopting the same approach as pretty much all the governments globally with lockdown and a focus on death. I regard the COVID capitulation to approach as a huge missed opportunity but who knows what pressures he was under and at least he got the major “UK specific” job of Brexit done.

Last edited 2 years ago by robert stowells