Ex-chancellor says productivity must accompany wage rises

Ex-chancellor Lord Lamont has said productivity must accompany any wage rises and that and that the Bank of England must change its quantitative easing policy to ease the risks associated with inflation.

The former Conservative MP for Kingston-upon Thames, who served as Chancellor of the Exchequer under John Major from 1990 until 1993, said it was worrying that inflation has risen by three per cent in the UK, claiming this was ”well above the targets set by central banks”, and that approximately £40 billion is currently being spent per year on “paying interest on Government debt”.

Speaking on BBC Radio 4’s Today programme on Saturday morning, the 79-year-old said: ”I would personally be in favour of an interest rate (rise) now but also the Bank of England ought to be considering ending, scaling back, its quantitative easing… Today there are signs of rising inflation, not just in the UK, three per cent, in the US it’s five per cent and forecast to go higher, in the Eurozone it is three per cent.

“These rates of inflation are well above the targets set by central banks.

“The danger is that inflation becomes embedded, it results in wage claims, public sector wage claims, and it becomes extremely difficult to reverse, and the longer you leave it in terms of putting up interest rates the more interest rates may have to go up and the faster they may have to go up.

“Central bankers, not just Bank of England, believe the current inflation is transient. I can understand why they think it’s transient but there is risk of it getting embedded.’

He also warned the Government’s policy of calling for wages to rise may accelerate inflation if the rise is not accompanied by an uptick in productivity, saying, “Wages going up because of increased productivity… is a good thing, but added that just pushing up wages by themselves, calling for them to go up, will not increase productivity itself and could become inflationary.”