Newsletter 16/07/23

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At the beginning of the week, the Chancellor and the Governor of the Bank of England were calling for ‘restraint’ in private sector wage rises as a way to fight inflation.

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Dear Subscribers,

At the beginning of the week, the Chancellor and the Governor of the Bank of England were calling for ‘restraint’ in private sector wage rises as a way to fight inflation. At the end of the week, the Prime Minister was offering public sector workers 5-7% pay rises. While teachers accepted the offer, union representatives for doctors have vowed to strike again. The pay increases are to be funded out of existing budgets, supplemented by revenues from increased charges for visa applications and NHS access for immigrants.

The Prime Minister also announced plans to limit the number of places on ‘low-value’ degree courses at UK universities. Courses which do not have a high proportion of graduates going on to professional jobs will be targeted.

The Intelligence and Security Committee published a damning report on national security issues relating to China. It says the resources set aside for dealing with the threat from China are ‘completely inadequate’ and that there has been a ‘serious failure’ to act sooner. The report describes how China has penetrated every sector of the UK economy as successive governments have been too willing to accept Chinese money.

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The red flag flying here?

The UK officially joined the Comprehensive and Progressive Trans Pacific Partnership (CPTPP), becoming the 12th country to sign up to the trade bloc, which includes some of the world’s fastest-growing economies. Some pro-Brexit MPs have said joining the CPTPP will make any future attempt to rejoin the EU less likely to succeed.

Ursula von der Leyen has been in Tunis this week accompanied by the leaders of Italy and the Netherlands in an attempt to stem the flow of migrants across the Mediterranean setting off from the Tunisian coast. A meeting in June resulted in a preliminary agreement involving €1 billion in EU funds.


Briefings co-editor Robert Tombs writes for the Telegraph about the Foreign Office’s problem with declinism. Read the full article here.

Former Australian PM Tony Abbott busts the myth of Brexit-broken britain. Read the full article here.

Julian Jessop writes about the importance of economic growth in hard times. Read the full article here.


NATO’s Compass Bearing by Adrian Hill

At the NATO summit Joe Biden and the Germans set the rules though may not realise they also set NATO’s compass bearing for many years to come. Meanwhile, Ukraine is amassing more modern weaponry and is strengthening its counter-offensive position while cracks are showing in the Russian command structure.

The Poles are not hanging around, nor hoping that America and the EU will stay the course. I suspect some in Warsaw foresee a NATO break-up which spreads to the EU. Where the former Soviet empire stays in NATO but quits the EU. They’ve doubled their order for tanks from South Korea. For all its bluff and bluster, the Poles see every day that the EU talks a lot but delivers far less than pledged. They also saw the fuss Scholz made while dithering over sending tanks to Ukraine. By ordering from South Korea the Poles keep the supply chain under their control. A thousand tanks make quite a good deterrent.

The Great Stagnation. Brexit not to Blame by Graham Gudgin

The virtual cessation of growth in productivity since 2008 is the largest economic problem of our age since living standards are unable to rise without higher productivity. This includes standards of public service provision which have come under severe pressure as government revenues have also stagnated. This stagnation is poorly understood but is more a consequence of faster employment growth than slower growth in output.

Has the great stagnation been a real economic problem? If the main cause was higher levels of formation of companies in low productivity activities, then in itself that may not have been such a bad thing. More cafes, Deliveroo riders or uber taxis might not have been strictly necessary but were nevertheless useful and were used.  The main long-term issue may be that it was immigrants who largely filled the jobs, and most of these will remain even if the jobs now disappear.  Unless output starts to grow much faster, we will be sharing a fixed economic cake among a larger population. This is, of course, all less than ideal. It also stems from the banking crisis which resulted in interest rates falling below 2% for the first time in the 300-year history of the Bank of England. The financial deregulation of the Thatcher era has a lot to answer for.

Key Points

As outlined above, the Chancellor and the Governor of the Bank of England called for ‘restraint’ in private sector wage rises as a way to fight inflation. At the end of the week, the Prime Minister was offering public sector workers 5-7% pay rises. Is there a method in the madness?

The Government has said that the public sector wage rises will be funded out of existing budgets so as not to fan inflationary flames, but this only betrays more disjointed thinking. Any rise in incomes will increase demand for consumer goods and is likely to contribute to the imbalance of demand over supply.

In economic accounting, a government deficit must exactly equal the combined surpluses of the private sector and the foreign sector. Every financial liability must be someone else’s financial asset.  Public deficits may fuel inflation but in very open economies like the UK, increasing public deficits are often reflected in a widening foreigner’s surplus i.e. a widening UK balance of payments deficit. If Sunak fails to find extra tax revenue to finance public sector wage increases then some mixture of rising inflation and widening balance of payments will result.

The Government proposes to squeeze existing budgets i.e. more austerity and to charge immigrants more for visas and access to the NHS. Neither of the immigrant payments may realise enough money and more austerity will add to the Bank of England’s attempt to cut demand for investment by making loans more expensive. Both routes are crude, further cutting living standards at a time of unprecedented cuts in those living standards.

The mess that is UK energy policy has tied electricity prices too closely to world gas prices. These prices are falling but the impact is coming through too slowly and employees are attempting to insulate themselves from falling living standards by gaining wage increases and passing the problem of imported inflation onto someone else. The Government has failed to convincingly explain the nature of the problem and tried initially to make its own (public-sector) employees take more of the pain while private sector workers gained higher pay increases. This is a de facto pay policy, and history shows that it never works for long.

Inflation will soon ease since international commodity prices are now falling, and the pressure for higher wages will abate. What is needed on all sides is patience. Sometimes the best course of action is to do very little.




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Yours Sincerely,


Newsletter Editor


A Cambridge Philosophy Graduate


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Briefings For Britain