In times of high inflation, the delicate balance between fiscal and monetary policy needs to be tightly controlled because if they become unbalanced, it can prolong the “economic agony” being experienced by the country.

It was not very long ago that the Government was saying that public sector pay awards above 5% would add to inflation and cause the Bank of England to tighten monetary policy as a pay/price spiral developed.

In the past few days, pay increases of between five and seven per cent have been announced while the Bank of England recently raised interest rates by fifty basis points, in a departure from the twenty-five that had become the “norm” over the past eighteen months or so.

The level of Government borrowing is already at 100% of GDP and is set to rise even further in the coming years as high-interest rates increase the debt servicing burden while the government is still trying to pay for the support that was provided during the Pandemic.

Add to that an ageing population where there are fewer tax receipts and the “triple lock” on the state pension where an annual increase guarantees that pensions will not lose value in real terms, and the dilemma facing the treasury becomes apparent.

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