The ongoing supply chain crisis should provide an impetus for companies to improve productivity thus ensuring higher wages are not cancelled out by rising inflation, Rishi Sunak has argued.

In another development in the government’s emerging insistence that queues at petrol stations and empty shelves in shops could be an indicator of longer-term benefits to the UK, the chancellor built on arguments made by Boris Johnson.

Interviewed on Sunday, the prime minister said that labour shortages, which have brought petrol shortages and the prospect of 120,000 pigs being slaughtered and burned, were part of a necessary transition to a higher-wage, higher-skilled economy.

In his own interviews on Monday ahead of his speech to the Tory party conference in Manchester, Sunak insisted the supply crisis was a global issue, which ministers could do only so much to mitigate.

“We can’t wave a magic wand,” he told BBC Radio 4’s Today programme. “There’s nothing I can do about the decision by a country in Asia to shut down a port because of a coronavirus outbreak. But be assured we are doing everything that is in our control to try and mitigate some of these challenges.”

Sunak’s comments came as the first military tanker drivers took to the roads to try to ease the petrol shortages. About 200 army personnel, half of them drivers, are being used mainly in London and the southeast of England, where the worst of the shortages remain.

The chancellor argued that higher pay need not necessarily lead to a spiral of rising inflation: “In an ideal world, if higher pay is being driven largely by higher productivity, then that is a net positive for the economy.

“It will depend on the particular sector, and we will see what happens. We don’t live in a command and control economy; the exact way that costs and prices manifest themselves is going to be different in each sector of the economy.

“But we want a high-productivity economy, to lead to higher wages, and we’re doing things to enable that.”

This might take time, Sunak said, acknowledging that for now the UK was more of a shortage economy, with wages for people such as HGV drivers being increased purely to plug labour gaps.

“But if that catalyses people to think about their supply chains and their business differently, to then invest in technology or equipment that can help drive up productivity, because now wage levels are higher … that can be a good thing,” he said. “This doesn’t happen overnight; it’s a process.”

Sunak said he believed people would not end up being poorer in real terms, saying he was not convinced that inflation would reach 4% by the end of the year.

“It could, but we haven’t seen that happen yet,” he said. “It is still the belief of the Bank of England and most other central banks that what we’re seeing at the moment will be transitory and will pass through the system over the course of next year.”

Asked if people would simply demand more pay rises in response to rising prices, Sunak added: “We’re getting into economic theory here, about people’s inflation expectations.

In an earlier interview, Sunak dismissed the argument of the Tory MP Chris Loder, who told a conference fringe meeting that he hoped the HGV driver shortage would lead to supermarket supply chains being dismantled.

“I don’t think anyone would say there’s an upside to people struggling with supply chain challenges and not being able to get what they want at the time they want it. No one wants to see that.” he told Sky News.


Source