THE big squeeze is on as workers face the severest hit to their take-home pay in 32 years.

Inflation, the scourge of the 1970s, is back, largely driven by rising energy costs, which have increased as the global economy wakes up from its Covid-inspired hibernation and demand surges for the limited stocks of natural gas amid constraints on supply.

Unhappily, this is coinciding with forthcoming tax hikes to help the NHS recover from…the pandemic.

With all this in mind, it never goes down well when a highly remunerated bowler hat in the City of London tells ordinary folk not to have a big pay rise to compensate; particularly, when that bowler hat, in this case, Andrew Bailey, the Governor of the Bank of England, has to rub along on £576,000 a year.

As inflation has hit 5.4% and is due to top 7% this year, Bailey suggested companies should show restraint. When asked if he was urging workers not to demand big pay rises, he replied: "Broadly, yes."

Cue Gary Smith, General Secretary of the GMB, who blasted: "Telling the hard-working people, who carried this country through the pandemic, they don't deserve a pay rise is outrageous. It's a sick joke.”

Sharon Graham, his counterparty at Unite, was equally forthright, asking: “Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?”

Energy price rises hit lower income households disproportionately because they spend more of their income on utility bills and so are more likely to be in fuel poverty.

The Resolution Foundation think-tank pointed out even with state help the number of people living in fuel poverty would double to five million.

The UK imports around half of its gas from the international market with most homes across the country heated by mains gas. The fossil fuel is also used to fuel around a third of the UK’s electricity generation, so rising gas prices have led to rising electricity prices. 

Bailey didn’t call for no wage rises at all, rather "moderation,” to prevent the rise in inflation becoming entrenched and a wage-price spiral taking hold as they did 50 years ago.

Whitehall didn’t help with, on the one hand, Simon Clarke, the Chief Secretary, endorsing the Governor’s view, saying it was "important pay restraint is observed" while Boris Johnson, via his spokesman, made clear he was not calling for pay restraint. Number 10 said: “We obviously want a high-wage, high-growth economy, and we want people’s wages to increase.”

Matters would have to go some way to replicate the horrors of the 1970s when inflation peaked at an eye-watering 26% and wage rises topped 29%.

Under the then Labour Government’s social contract there was pay restraint but it didn’t last. Strikes during the infamous Winter of Discontent paved the way for the Conservative election victory under Margaret Thatcher’s leadership in 1979.

Thursday saw an unpleasant double whammy. The Bank of England raised interest rates from 0.25% to 0.5% while Ofgem, the energy industry regulator, raised the cap on average household energy bills by 54% to £1,971. From April, consumers will, on average, have to find another £693 a year to light and heat their homes.

Chancellor Rishi Sunak told the country the taxpayer would bail out the taxpayer with measures to cut energy costs for many households by £350 through a combination of rebates and council tax cuts. But the rebates will have to be repaid. The assumption is energy costs will fall back; quite an assumption.

In Scotland, analysis of official data suggests a postcode lottery with households in some council areas faring much worse than others. Residents in Argyll and Bute, for example, are set to face an annual energy bill of £3,187 from April while, in Glasgow, the comparative figure will be £1,926; a difference of £1,261.

Extra help is being demanded to avoid a surge in fuel poverty, particularly in rural areas. Kate Forbes, Scotland’s Finance Secretary, is expected to address the issue at Holyrood this coming week.

Bailey, with a deal of understatement, admitted the UK faced a “difficult period ahead” with the cost of living crisis lasting until 2023 when, hopefully, inflation would return to a “more stable position”.

He warned if workers made inflation-busting pay demands, there would be more pain; interest rates would have to rise further to quell consumer demand and attempt to put a lid on prices.

It’s clear the cost of heat and light is set to become the dominant feature of our politics for some time.

On Tuesday, the Conservative Government is set to come under more pressure as BP is expected to announce bumper annual profits in the region of $13 billion thanks to record high gas prices and the doubling of oil prices.

In November, Bernard Looney, the energy giant’s Chief Executive, said, injudiciously, BP had become a “cash machine at these types of prices”.

Shell has already announced the quadrupling of its profits for 2021 to $19bn in part due to the cash rolling in from shipping liquefied gas on the international market amid the global squeeze on gas supplies.

Labour will doubtless renew its call for a windfall tax on the energy giants. Expect a Commons Urgent Question next week.

It was only four months ago that the world arrived in Glasgow to try to create an international consensus on fighting climate change.

But as more countries begin slowly to ditch coal in favour of gas as a first step to reducing CO2 emissions and then moving to greener forms of energy, the cost of this fossil fuel will simply keep rising.

So, Ofgem regularly changing the price cap looks likely to become an art for years to come with the Government spending more public money to alleviate the hit on taxpayers.

Meaning that, when the next General Election arrives, while the lingering effects of partygate and the pandemic might have a bearing on voters’ minds, uppermost will be how to keep the heating and lights on.