Alistair Darling calls for wage restraing. But why should people accept lower wages?

Bankers and Chancellors are very good at telling other people to tighten their belts. All week we’ve been receiving pious lectures about how Britain must never return to the dark days of 1970s when wage claims drove up prices in a ruinous inflationary spiral. The Governor of the Bank of England, Mervyn King, and Alistair Darling effectively told the country that it will have to take a further pay cut this year.

All well and good. None of us want to return to the days of hyper inflation. But hang on a minute; just look at the numbers: food prices are up 8% over the past year; domestic energy bills are up 10% ; petrol is up 20%; and mortgage repayments, for the million or so coming off those two year fixed rate mortgages, will be up 25%. I’m afraid returning to the era of hyper-inflation isn’t just a hypothetical question - for many of us it’s already here.

The Guv’nor insists that prices will fall later in the year, and that people should be patient and wait. But I don’t find this very convincing. The BBC reported last week that the energy companies are planning another 40% increase in fuel bills this autumn. Most of the cost of the recent doubling of oil prices hasn’t begun to filter through into prices, and oil affects the price of almost everything.

The value of the pound has collapsed by 14% this year increasing the cost of imports and prices in the shops. Finally, look across the globe, and you see where the real engines of inflation are today: countries like India, China where inflation is out of control and the governments are revaluing their currencies upwards. Since China and India manufacture most of what we buy, it’s clear that price rises are far from over. So, despite average wages and salaries declining in in Britain in real terms, inflation is gaining momentum. The assumption that price increases simply follow wage pressure is not justified.

In these circumstances, is it realistic - is it morally acceptable - to say that people should not seek to defend the living standards of their families? It is easy to talk about wage restraint when you are earning nearly £300,000 like Mervyn King; less so when you are a public sector worker earning £15,000 a year. Curiously, neither the governor in his Mansion House speech, nor the Chancellor, Alistair Darling, called for pay restraint in the City of London. This year - of all years - financiers paid themselves a record £13.8 billion in bonuses after having almost destroyed the financial system with their irresponsibility. The banks have effectively been loaned nearly £100bn of taxpayers money since Northern Rock collapsed.

Now, of course, we don’t want to lapse the politics of envy. But consider this: in our plutocratic, smash-and-grab economy it may actually be more difficult to ensure industrial compliance than in the days of 1970s corporatism. Why shouldn’t people use their bargaining power to get a better deal? Perhaps if they had some idea that naked profiteering by the utility companies, banks and hedge fund speculators was being tackled, then they might be prepared to accept a bit of hair shirt. But I have yet to hear a word of criticism from Gordon Brown about energy cartels or rampant speculation in food and oil.

I know this sounds strange, but back in the militant 1970s, workers did feel a sense of social responsibility. There were things like prices and incomes policies; taxation of the rich; council housing. Shirley, now Baroness Williams was Prices Minister - an outlandish concept today, when prices are left entirely to the market. Most workers understood that there was a trade-off in society - the “social contract” as James Callaghan called it in 1978 - which justified moderate pay demands. There was a sense of fair play, even if it broke down in the Winter of Discontent in 1979.

This time round, neither the government nor the Bank of England has made any attempt to argue a moral case for wage restraint. It has simply asserted that ordinary people must get poorer to ensure stability. Yet even by government’s own economic logic, this is not self-evident. When Gordon Brown announced the £2.7bn tax cut recently - equivalent to 2p on the basic rate - he said that this would provide a “much needed fiscal stimulus”. In other words it would give people more money to spend in the shops. But won’t falling earnings do the reverse?

If millions of workers are effectively going to lose purchasing power by below inflation wage settlements, surely that means demand will fall and the economy will lapse more rapidly into recession. Everyone agrees that consumer spending has been buoyed in recent years by house price inflation, but now that house prices are falling, how are British consumers going to be able to keep the economy going? This is a paradox that Mansion House man refuses to address.

This is parlty because Mansion House Man feels he doesn't have to address it; that the trades unions are in no fit state to organise industrial actions on a wide scale. Only last December, the Bank of England’s labour market expert, Professor David Blanchflower, trumpeted that there was no need to worry about wage pressures because bargaining power had been eroded. “Workers are fearful about the security of their jobs”, he said in the Guardian, “in part because of the fear that they could be replaced by employees from Eastern Europe, or their firm could relocate abroad”

Well, I’m not so sure about that. Polish workers are returning home fast as their real wages fall and the economy falters. We saw in the Grangemouth oil refinery dispute in April and in the Shell tanker drivers walk out this month that workers can relearn the techniques of militancy pretty fast. People will have watched and learned as the Shell drivers won a 14% pay rise over two years.

In the age of the mobile phone and the internet, industrial action may take on new and unexpected forms. Remember the fuel protests in 2000 which erupted from nowhere without the help of Red Robbos or Socialist Workers. We live in a highly complex society with a number of pinch points, in energy, transport, information technology, financial services and the public sector which groups of workers may well seek to exploit to maintain living standards. There could be some quite ugly disputes as relatively small groups use their muscle to get their snouts in the trough, and they're not going to listen to lectures from bankers about restraint. So, get ready for some action on the industrial front A summer of discontent in the public services may only be the start of it.