How Bank of England chief economist Huw Pill’s cost of living comments ignore the huge UK inequality gap
Despite the Bank of England calling on workers not to demand big pay rises, CEOs took home an extra 23% on average in 2022 - equivalent to the incomes of more than 20 typical households
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First, in February 2022 we had the central bank’s governor Andrew Bailey calling on workers not to demand big pay increases over fears it could make inflation worse. Then, in mid-April, Bailey popped his head above the parapet once again to make unwise comments about the banking crisis.
Now, it has been the turn of one of his deputies - the Bank of England’s chief economist Huw Pill - to put his foot in it. Pill told an American podcast that there is a “reluctance to accept that, yes, we’re all worse off” as a result of inflation, which is currently running at 10.1%.
While Pill is right that, yes, we are all worse off thanks to near-record inflation, having a man who earns an estimated £190,000 a year effectively telling the country that they should just deal with it is not a great look to say the least.
It is the latest sign that some of the country’s top economists are out of touch with the cost of living challenges being faced by most people in the UK. Given they have a major influence over our daily lives by deciding what interest rates should be, this is seriously concerning.
Pill’s comments completely ignore the disparity between rich and poor in the UK. According to the OECD, we live in one the most unequal countries in the ‘developed’ world.
While the average household’s annual income during the 2021/22 financial year - the most recent year for which we have concrete data - was £32,300, the richest 1% had an income likely to be in excess of £160,000. Also in 2021/22, official statistics show 37% of the UK’s total disposable household income went to the fifth of individuals with the highest household incomes, while 8% went to the fifth with the lowest.
Throughout the cost of living crisis, living standards-focused think tank the Resolution Foundation has measured the gap in the real-terms inflation being faced by the poorest and richest tenth of households. Its latest analysis of March 2023’s CPI figures shows those on the lowest incomes are seeing inflation that is 3.5% higher than those on the highest - the reason being that people with less money tend to live in poorer quality housing and have to pay more for staples, like food.
But the Bank of England never makes the important distinction between rich and poor when it makes its statements about belt-tightening. It seems to be of the belief that all wage increases are equal, when they clearly are not.
You don’t need to be an economist to see that handing out an inflation-busting pay rise to a worker who earns less than £30,000 will not have anything like the inflationary impact of a CEO’s pay rise. In fact, CEOs took home an extra 23% on average in 2022, with their pay rises alone equivalent to the incomes of more than 20 typical households
I’m not here to bash the Bank of England, which has an immensely difficult job in keeping the UK’s economy on a stable course. The fact that I’ve written about them in consecutive opinion pieces is merely coincidental.
But I do think it needs to improve how it weds economics with real people’s lives. The words of its top officials can have major consequences, and we need to have faith in their judgement for our country to get out of its inflationary mess, let alone continue to function properly.
Acknowledging that the poorest people in our society are really struggling and need more help, rather than victim-blaming, would be a great start.