Meanwhile, the Government is aiming to strengthen workers’ rights and ease anti-union legislation. That is not the way to help pay inflation down to much lower levels. The next increases in the minimum wage and the national living wage are due in April. The Chancellor must be prepared to suffer deep unpopularity within her party by being much less generous on these rates than her predecessor.
If pay inflation stayed somewhere near the current level, then price inflation would before long bounce back up from its current rate of 2pc. If that were to happen, then you could kiss goodbye to the hope for a large cut in interest rates (some analysts still expect the first reduction to happen on Thursday).
Indeed, you could imagine that before too long interest rates would be rising instead. Not only would that deal a serious blow to the economy, but it would also increase the debt interest bill and hence government borrowing.
There is a nasty precedent for the Chancellor to bear in mind. In 1979, Margaret Thatcher was elected with an economic programme devoted to reducing inflation and public borrowing. As we all now know, she did eventually achieve her goals. But in the first years two major misjudgements made things much more difficult for the government.
It accepted the recommendations of the Clegg Commission for large increases in public sector pay (no, not that Clegg!). These not only increased government spending and borrowing considerably but also influenced pay in the private sector. And in its first budget, the government increased the rate of VAT from 8pc to 15pc, which directly boosted the inflation rate. Far from falling, inflation rose, peaking at nearly 21pc in May 1980.
Nearly 50 years on, the pressures on public spending are again intense. Already there is a contentious issue among Labour MPs about the two child benefit cap, which would cost about £2.5bn to drop. More importantly, there is likely to be a large amount of extra money poured into the NHS before Wes Streeting, the Health Secretary, is able to introduce radical reforms that bring improvement without spending more money.
