Jeremy Hunt offers hope on pay settlements but rules out feeding inflation
Chancellor Jeremy Hunt has not ruled out increasing pay offers to public sector workers, but warned that giving more money to teachers and nurses could entrench high inflation.
Speaking as it was revealed the UK economy narrowly avoided recession in 2022, Mr Hunt also indicated he would resist pressure to cancel a planned cut to household energy support that will see typical bills rise by £500 to around £3,000 in April.
Asked if there were any circumstances in which he would consider increasing pay offers to avert more public sector pay strikes the chancellor told Sky News: “It’s not a no, but I’m saying we’ll talk about absolutely anything, except things that will dig in the very high inflation that is causing people to see the cost of their weekly shop go up and the value of their wages erode.
“We’ll talk about absolutely anything to resolve the strikes except measures that will entrench high inflation.
“We don’t think strikes are helpful, they’re very damaging and very disruptive. The best way to resolve these issues is to sit and talk and find a solution that doesn’t entrench the very inflation that is upsetting so many people.”
Many economists dispute the argument that increasing public sector pay can entrench inflation, but Mr Hunt said it was a key factor in holding down pay.
“We should listen to a very clear warning from the Bank of England governor on Thursday who said that if you fund higher wage settlements through borrowing, that is inflationary, and that’s why it’s a very difficult situation. We want to get back into a situation where people’s real wages are growing.”
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Why is the UK economy so weak?
On maintaining energy support, a measure that would reduce inflation for family budgets, he argued that continuing support at current levels would damage the public finances.
The cost to the taxpayer of existing support has proved much lower than initially forecast because wholesale gas prices have fallen, leading campaigners and the energy industry to call for support to be maintained.
“We are doing absolutely everything we can to help families through this difficult period,” Mr Hunt said. “We’re giving about £3,500 of support on average to every family in the country this year and last year, so it’s a massive amount, about £99bn.
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“But we also have to be responsible with public finances. Because if we’re not we just give them a different pressure, which is higher interest rates as a result of the reasons. We look at everything we can do, but we won’t do things that lead to higher interest rates.”
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Thousands of NHS workers strike
The chancellor’s position on pay and energy reflects the dismal state of the public finances.
The official figures released by the Office for National Statistics earlier on Friday paint a grim picture of a stagnating economy with a dysfunctional public sector.
The Bank of England is forecasting a recession this year, albeit slightly less acute than previously, and forecast the UK will not recover to its pre-pandemic scale until 2026.
There is also acute pressure on Mr Hunt from businesses to incentivise investment and growth. Pharmaceutical giant AstraZeneca offered a stark example of the impact of government policy this week, citing rising corporation tax as the reason it has chosen to build a new manufacturing facility in Ireland not the UK.
Mr Hunt rejected the characterisation of the UK’s prospects.
“We believe that this country has some of the most exciting growth prospects anywhere if you look at our strengths in technology,” he said.
“Last year, we became only the third country in the world to have a trillion-dollar tech economy, our strengths are the life sciences and in clean energy where we’re a world leader in offshore wind. We think we have fantastic growth prospects.
“But to take to make the most of those we have to deal with our inflation issue which is over 10%, and for companies that want to invest high interest rates are a real disincentive.
“We need to get interest rates down. That was working with the Bank of England to deal with inflation. And then we think we have tremendous growth prospects.”
Volodymyr Zelenskyy says two Chinese citizens have been captured while fighting in eastern Ukraine.
He said his forces had fought six Chinese soldiers and two of them had been taken prisoner. He added he had ordered officials to obtain an explanation from Beijing.
“We have information that there are many more Chinese citizens in the occupier’s units than just two. We are now finding out all the facts,” he added.
As it happened: Zelenskyy demands reaction from US
China is an ally of Russia and has been accused of helping its war in Ukraine, though Beijing has repeatedly denied allegations that it has supplied Kremlin forces with weapons.
“Russia’s involvement of China in this war in Europe, directly or indirectly, is a clear signal that Putin is going to do anything but end the war,” Mr Zelenskyy said. “He is looking for ways to continue the war.”
Mr Zelenskyy described China as having joined Russia’s war against Ukraine and said he expected the US to react.
There was no immediate comment from China.
How many Chinese are actually fighting for Russia?
Were they volunteers – or mercenaries – who had signed up to fight in the Russian army on their own?
Alternatively, does the Chinese government sanction their involvement – or even encourage it? That would make the situation far more serious.
The capture of these Chinese nationals in Donetsk begs another question – how many Chinese are actually fighting for Russia? In his written post on social media platform Telegram, Volodymyr Zelenskyy said “there are many more Chinese citizens” other than these two.
Still, the Ukrainian president works hard to suggest the Chinese, officially at least, are blameless.
“Russia’s involvement of China in this war… is a clear signal that [Russian President Vladimir] Putin is going to do anything but end the war,” he writes on Telegram.
This is a generous interpretation of China’s approach to the conflict, which is quite openly contradictory.
Fighters of various nationalities have joined Russia’s army during the war, often in return for promises of large sums of money. This does not represent official interventions by their home countries.
North Korea has also sent thousands of its troops to support Russia.
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‘This could be very, very embarrassing for China’
After Mr Zelenskyy’s announcement, the Ukrainian foreign minister said he had summoned China’s diplomat for an explanation, saying on social media the presence of Chinese citizens in Russia puts Beijing’s stance for peace into question.
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Ukraine in Belgorod, almost out of Kursk
Last night, Mr Zelenskyy confirmed for the first time that Ukrainian forces are active in Russia’s Belgorod region.
He described the actions as “just”, adding: “war must return to where it came from”.
Meanwhile, regional governor Alexander Khinshtein said Russian forces are on the verge of reclaiming Kursk, months after Ukraine’s surprise incursion.
He claimed Russian forces had seized the settlement of Guyevo. Russian state news agency TASS said only two more settlements are left to recapture – Gornal and Oleshnya – to retake the entire region.
World
What we learn from video of captured Chinese national in Ukraine – and the serious questions it raises
In a carefully written post on social media platform Telegram, Volodymyr Zelenskyy accused the Russian army of deploying Chinese citizens on the battlefield in eastern Ukraine.
What about the proof? Well, the Ukrainian president says his security services captured two people from China in the Donetsk region – along with identity documents, personal data and their bank cards.
Follow latest: Zelenskyy demands reaction from US
A video of a man in military fatigues who had been captured by Ukraine was pinned to the bottom of the statement.
We get snippets of a conversation where the alleged combatant seems to be talking about the events that led to his capture.
“When we arrived at the place… and then my commander.” The man gestures at the floor and ceiling, making shooting noises. “I was also injured.”
Volodymyr Zelenskyy uploaded a video appearing to show a Chinese citizen in military uniform in Ukrainian custody
These details will make it difficult for the Chinese government to deny the incident out of hand, although they are highly unlikely to supply additional information.
Important details like, who are they? What function(s) do they fulfil in Ukraine’s occupied territories?
Were they volunteers – or mercenaries – who had signed up to fight in the Russian army on their own?
Alternatively, does the Chinese government sanction their involvement – or even encourage it?
That would make the situation far more serious.
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The capture of these Chinese nationals in Donetsk begs another question – how many Chinese are actually fighting for Russia? In his post, Mr Zelenskyy said “there are many more Chinese citizens” other than these two.
Still, the Ukrainian president works hard to suggest the Chinese, officially at least, are blameless.
“Russia’s involvement of China in this war… is a clear signal that [Russian President Vladimir] Putin is going to do anything but end the war,” he writes on Telegram.
This is a generous interpretation of China’s approach to the conflict, which is quite openly contradictory.
On one hand, Chinese President Xi Jinping describes China as a neutral party to the conflict, while simultaneously offering Mr Putin long-term political and economic support.
In fact, he described their partnership as a “no limits” one in a phone call with Mr Putin on the third anniversary of Russia’s full-scale invasion of Ukraine.
Mr Zelenskyy then, is making a point with this post – but he does not want to make the situation any worse.
The severity cannot be overstated, if an additional 50% tariffs are levied on all Chinese goods it will decimate trade between the world’s two biggest economies.
Remember, 50% would sit on top of what is already on the table: 34% announced last week, 20% announced at the start of US President Donald Trump’s term, and some additional tariffs left over from his first term in office.
In total, it means all Chinese goods would face tariffs of over 100%, some as high as 120%.
It’s a price that makes any trade almost impossible.
China is really the only nation in the world at the moment that is choosing to take a stand.
While others are publicly making concessions and sending delegations to negotiate, China has clearly calculated that not being seen to be bullied is worth the cost that retaliation will bring.
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Tariffs: Xi hits back at Trump
The real question, though, is if the US does indeed impose this extra 50% tomorrow, what could or would China do next?
It has said it will “fight to the end”, but what does that mean?
In reality, there are few good options.
There are some obvious measures that China will almost certainly enact.
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Further export controls on rare earth minerals (crucial for the development of high-tech products) are one example. China controls a huge proportion of the world’s supply, but the US would likely find workarounds in time.
Hiking tariffs on high-impact US products such as agricultural goods is another option, but there is only so far this could go.
The potentially more impactful options have significant drawbacks for Beijing.
It could, for instance, target high-profile American companies such as Apple and Tesla, but this isn’t ideal at a time when China is trying to attract more foreign investment, and some devaluation of the currency is possible, but it would also come with adverse effects.
Other options are more political and come with the risk of escalation beyond the economic arena.
In an opinion piece this morning, the editor of Xinhua, China’s state news agency, speculated that China could cease all cooperation with the US on the war against fentanyl.
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This has been a major political issue for Mr Trump, and it’s hard to see it would not constitute some sort of red line for him.
Other options touted include banning the import of American films, or perhaps calling for the Chinese public to boycott all American products.
Anything like this comes with a sense that the world’s two most powerful superpowers might be teetering on the edge of not just a total economic decoupling, but cultural separation too.
There is understandably serious nervousness about how that could spiral and the precedent it sets.
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