Not just pasties: Inflation will remain too high for comfort

Allister Heath
FOR a Prime Minister whose only private sector job was working in public relations, it is astonishing how bad his government’s communications skills have become. From implausible anecdotes about their pasty eating habits to panic-mongering about petrol shortages, David Cameron, George Osborne and Francis Maude, the cabinet office minister, have been blundering as if there were no tomorrow. But while PR matters, over time reality is even more important – and on that front the news isn’t good either.

Rising prices (and falling real wages and wealth) are one of the main reasons why the economy has under-performed (and is now thought to have shrunk by 0.3 per cent in the fourth quarter). But it is looking ever less likely that the Bank of England’s uber-optimistic inflation predictions will be met. Inflation will continue to fall, but the decline won’t be sufficient to make enough of a difference. Osborne’s Vat and other hikes will boost the consumer price index by around 0.4 per cent, while oil and petrol prices are higher than previously expected.

Until now, wage growth has remained weak and below the rate of inflation. While bad for workers, at least this didn’t trigger a dreaded 1970s-style price-wage spiral, a vicious circle whereby higher prices trigger compensating pay rises, an excessive rise in demand (unchecked by a complacent Bank of England), further price rises, even greater wage rises, inflationary chaos and a collapse in competitiveness. For the first time, however, there are some signs that workers and employers are beginning to react to persistently high inflation.

The latest survey from Incomes Data Services shows median UK pay settlement reached 3 per cent for the three months to the end of February. This is up from the 2.5 per cent this time last year. This is in part due to higher settlements in industries for which the outlook has improved. As long as they remain at present levels, pay rises are good as they eliminate most of the effects of inflation.

But any sign wages are beginning to rise uncontrollably would be a disaster and signal the complete failure of Britain’s grand experiment in ultra-loose monetary policy. We shall soon find out which it is to be.

Here is a question to which I genuinely don’t have an answer. Why is customer service so bad at so many of Britain’s largest firms? It’s truly baffling – and the fact that the public sector is even worse is no excuse. The fact that there are a few key exceptions – the top supermarkets and online retailers such as Amazon are pretty good – makes the failure of the others – especially in retail financial services or in telecoms – especially irritating.

Why do so many transactions go wrong? Faulty phones are replaced by equally faulty phones, goods don’t turn up or if they do miss vital components, paperwork is lost, simple procedures take weeks and so on. Why is it so hard to communicate properly with people in call centres? Clearly, incompetence is endemic in Britain. But why? What has gone wrong? Is it the education system? Is it a creaking infrastructure? Has it become too difficult to sack bad staff? Is it regulation? Is the quality of management too low? Have most people lost their work ethic and pride in doing a good job?

What is certain is that millions of hours are wasted every week dealing with nonsense and errors, and this has become a major drag on productivity, economic growth and quality of life. It is also very bad for the reputation of capitalism, already battered by the crisis. The situation needs to change – but how the revolution will come about is the £1 trillion question.