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Chancellor points to reason for high inflation

todayAugust 12, 2023 2

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Chancellor points to reason for high inflation

Chancellor Jeremy Hunt has warned that profit increases benefit no one if they worsen inflation.

Mr Hunt said he agreed with remarks by Bank of England governor Andrew Bailey and said “margin recovery benefits no one if it feeds inflation”.

Mr Bailey has spoken out against companies raising prices, seeking to recover profits hit during the COVID-19 pandemic.

Speaking at the City of London’s Mansion House on Monday evening, Mr Hunt said the UK’s economic resilience – such as the low unemployment rate and lack of recession – is one of the reasons inflation has remained high.

“[The UK economy] has shown itself more resilient than many predicted, but that resilience is itself one of the reasons for higher inflation,” he said.

Jeremy Hunt at Mansion House

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Jeremy Hunt at Mansion House on Monday evening

Corporate profiteering and wage increases were spurring on stubborn inflation, Mr Bailey said last month when the latest interest rate rise was announced.

“We can’t have companies seeking to rebuild profit margins which means prices continue to go up at their current rates,” Mr Bailey said.

“The current levels, I’ll be honest, are unsustainable.”

He has previously suggested that food producers – rather than supermarkets – may be overcharging.

Banks and supermarkets have continued to profit, with some seeing profits increase, throughout the cost of living crisis.

The chancellor also outlined ambitions for pension reform.

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A core aim for Mr Hunt is to remedy the fact UK pension funds don’t invest in UK high-growth companies as much as their international counterparts.

The heads of major defined benefit pension schemes – the schemes most people are members of – on Monday signed an agreement aiming to, by 2030, allocate at least 5% of the funds people automatically join to shares in companies that aren’t listed on a stock exchange.

The defined benefit market is “too fragmented”, Mr Hunt said, and there is scope for them to consolidate.

Overall the announcements were said to be “evolutionary not revolutionary”, by Mr Hunt.

Pension schemes which are not achieving “the best possible outcome for their members” will face being wound up by the Pensions Regulator, Mr Hunt added.

There could be real financial benefits as a result of reforms, the chancellor said.

“For an average earner who starts saving at 18, these measures could increase the size of their pension pot by 12% over their career – that’s worth over £1,000 more a year in retirement.”

There will also be benefits for some companies, he added.

“At the same time this package has the potential to unlock an additional £75bn of financing for growth by 2030, finally addressing the shortage of scale up capital holding back so many of our most promising companies.”

Written by: Newsroom

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