Big pay rises could push prices up, says minister

A Treasury minister has warned employees not to expect their wages to rise along with the soaring rate of inflation.

Simon Clarke said that big increases in salaries to meet the rising cost of living could end up in a 1970s style "inflationary spiral".

This happens when wage rises help push up the cost of living.

Mr Clarke said that employers should be "very careful" in setting pay rises to prevent this.

He warned that inflation could become a "self-fulfilling prophecy".

On Thursday the Bank of England said that inflation could reach more than 11%.

In a BBC-commissioned survey of more than 4,000 people, 82% said they thought their wages should increase to match the rising price of goods and services.

But Mr Clarke, who is chief secretary to the Treasury, told the BBC that "unrealistic expectations around pay" could "intensify this endless inflation problem".

The public sector pay review bodies are due to report in the coming weeks on the level of increase for workers - including employees in health, schools and prisons.

Unions are pressing to have the pay increases reflect the rising cost of living.

Mr Clarke is the Treasury minister in charge of the pay review body process.

His comments are the clearest steer that public sector workers in general will not get settlements close to the current rate of inflation.

The independent bodies have begun to report back to relevant government departments about appropriate pay and recruitment difficulties.

The Treasury says those departments will have to find the cash from existing budgets for any pay rises above what is already planned.

Mr Clarke said there was no automatic link between inflation and pay setting and that inflation could "run away from us".

Between February and April, pay excluding bonuses was down 2.2% from a year earlier when adjusted for inflation, according to the ONS.

However, pay including bonuses is outpacing price rises, rising by 0.4% when taking inflation into account.