Summer of discontent looms after King’s inflation warning

Mervyn King, the Governor of the Bank of England, may just have sunk Gordon Brown's last hope of winning the next election. King was judged by the black ties at last night’s Mansion House dinner to have been far more realistic than Alistair Darling in his stark warning about the next 12 months.

Brown had breathed a sigh of relief when 500,000 health workers voted a few days ago to accept a pay deal of an extra eight per cent over the next three years. But King's letter to Darling this week saying inflation has hit 3.3 per cent and could go above four per cent next year has left the Unison members facing a real pay cut, and they are calling for the deal to be reopened.

Darling, meanwhile, said that the next year would be tough, but "we will get through it" whistling as we go, no doubt. He called for pay restraint in general terms but specifically denied any comparison with the 1970s and the winter of discontent that was clearly on the minds of the City suits stirring their coffee over the petit fours.

But King warned that any move by the unions to seek inflationary pay claims would be met with the big stick of higher interest rates.

The unions have hit back with real venom. Their line is that the fat cats in the City who attended the Mansion House banquet can line their own pockets with bonuses while the workers have to accept real-terms pay cuts thanks to rising inflation - and it is not on.

Unison leader Dave Prentis, demanding that the eight per cent deal is reopened and that his members get more to compensate them for the rise in inflation, said: "We are saying very strongly that enough is enough. We took the hit last year. The working poor are not going to take the hit again. We will be defending our members if they decide to take industrial action to maintain their standards."

NHS members of the union, Unite, are balloting on industrial action. Gail Cartmall, assistant general secretary of the union, said: "Our message to Alistair Darling is that it is simply not good enough for the lowest paid to take the hit from pay restraint. Perhaps he should be shining a light on the boardrooms of Britain where they have been having massive bonus payments."

Brendan Barber, general secretary of the TUC, said: "Low-paid middle-income earners ought at least to be able to rely on the sense that they are not going to be faced with a pay cut and a cut in their living standards. If that isn't met, there is a risk of disputes and the Government would pay a political price too."

As a summer of discontent looms, the BBC was reporting that gas industry chiefs have briefed them that prices for domestic fuel could rise next year by an eye-watering 40 per cent. That would push over a million pensioners into poverty, just for starters. And it would have the unions manning the barricades. All this in the countdown to the next general election.

No wonder George Osborne, the Shadow Chancellor, looked like the cat who had got the cream when he appeared on Newsnight last night. Osborne was so keen to claw Darling and Brown that he over-reached himself, saying: "I am not against opening negotiated pay deals..."

Osborne's office had to take the unusual step of issuing a further statement to clarify his words. He was not encouraging the public sector unions to reopen pay deals that had already been done, he said. But it is pretty clear, if Brown has to fight the unions while Osborne and Cameron are on the beaches, he won't mind a bit.

THE MOLE: INFLATION

FIRST POSTED JUNE 19, 2008