Darling warns of ‘disastrous’ pay demands

Trade unions were warned yesterday against a “disastrous” return to 1970s-style inflationary pay demands, after striking Shell tanker drivers secured a big wage settlement amid threats of renewed unrest in the public sector.

Alistair Darling raised the danger of a wage-price spiral gripping Britain, where “imported” inflation in the shape of rising energy and food prices is reinforced by domestic pay pressures.

The chancellor’s deliberate evocation of the 1970s has a special significance for Labour, recalling the 1978 “winter of discontent” when a wave of strikes helped to force the party from power and into the wilderness for almost two decades.

“If you get yourself into a position where every penny extra you get through pay rises is eaten up through price rises, through inflation, then we will get into precisely the problems Britain had in the 1970s, 1980s and even the early 1990s,” Mr Darling told the BBC.

“We have got to be vigilant in relation to all pay – public and private sector pay alike – because if we get ourselves into that spiral, it will take years to get out of it.”

The rapid increase in inflation to 3.3 per cent, confirmed in figures on Tuesday, coincided with a potentially ominous pay settlement between Shell tanker drivers’ leaders and their employers.

Pending formal consultation with the drivers, a second round of industrial action threatened for this weekend has been cancelled after a four-day stoppage from last Friday caused some petrol stations to run out of supplies.

Details have not been formally published but union leaders were delighted with the two-year pay settlement, worth 14 per cent in total, with 9 per cent in the first year and 5 per cent in year two.

Ministers are well aware of the signal that the pay deal could send out to other unions: that strike action and disruption to the public yields results.

Mr Darling was adamant that the agreement was specific to the transport sector, while government officials say it reflects longstanding grievances between more than 600 drivers and their employers, Hoyer and Suckling.

The chancellor, who delivers his keynote Mansion House speech last night, cited “peculiar” circumstances in the industry. He said there were “very good reasons to be optimistic” about the state of the economy.

Gordon Brown’s cabinet this week agreed to forego their pay increase this year in a gesture to the public and unions that they were sharing the nation’s pain.

But Alan Duncan, shadow business secretary, said: “It is a dangerous moment. If the trade unions behave irresponsibly they would risk doing enormous damage to their members and the country and could return us to the dark days of the 1970s.”