Curb pay rises or we face inflation disaster, warns the Chancellor

Grim warning: Alistair Darling

Alistair Darling warned against inflationary pay rises for public and private sector workers today saying they would fuel rising prices.

The Chancellor raised the spectre of Seventies inflation rates - when annual price rises went above 20 per cent. "That would be a disaster, not just for the country but for each and every one of us," he said.

He spoke out after inflation burst its banks to hit a 10-year high of 3.3 per cent, amid forecasts that it will top four per cent this year.

Mr Darling was expected to deliver a similar sermon on the need for pay restraint tonight in his first annual Mansion House speech to the City.

At the same time, Gordon Brown squared up to the unions by warning them not to attempt to unpick threeyear pay deals that were agreed before the latest rise. "These deals have been negotiated with the unions, they have been agreed by the unions," the Prime Minister's spokesman said. "At this time of economic uncertainty, it is important that we maintain discipline in relation to public sector pay."

Neither No 10 nor the Chancellor would say openly that people should accept pay awards below the rate of price rises - which would mean an effective cut in family incomes in real terms - but that was the implicit meaning of their warnings. Admitting there would be a "difficult" year ahead for many families, Mr Darling told BBC radio there was a real danger of the sort of inflation levels that have not been seen in Britain for a generation. "If you get yourself into a position where every penny extra you get through pay rises is eaten up through price rises, through inflation, then we will get into precisely the problems Britain had in the Seventies, the Eighties, and even the early Nineties, when inflation was at very high levels," he said.

"We have got to be vigilant in relation to all pay - public and private sector pay alike - because if we get ourselves into that spiral it will take years to get out of it."

Amid reports that Shell tanker drivers won a double-digit pay rise from their strike, Mr Darling insisted that was a one-off, reflecting the "peculiar" circumstances of that industry.

New official figures show average pay rises have slipped behind inflation for the first time - effectively making families worse off than they were a year ago. Wage increases are running at 3.2 per cent, a shade below the official measure of the rising cost of living, the Consumer Prices Index.

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