How does Boris Johnson save the economy?

'For the first time since records began, there are fewer unemployed people than job vacancies,' the ONS says. The number of unemployed people in January to March was 1,256,846 whereas vacancies in February to April 2022 rose to a new record of 1,295,000. At a time when we may already be in recession, and we certainly face it later this year, this is extraordinary.

Part of the explanation is that hundreds of thousands of people have voluntarily left the Labour market, as the Bank of England’s governor Andrew Bailey told MPs yesterday. One explanation is that large numbers of people have long Covid and cannot work. Others are clinically vulnerable and are choosing not to work because they don’t wish to take the health risk when Covid remains prevalent. Covid has therefore had the opposite long-term effect on the economy than was widely feared.

The greatest Covid risk was thought to be the collapse of businesses, mass long-term unemployment and a prolonged slump. But £400 billion of government employment support avoided that crash. There are consequences however, and an unusually tight labour market – more vacancies than unemployed people – is one.

A manifestation is that pay including bonuses was 7 per cent in the first quarter, or 1.4 per cent higher than the inflation rate prevailing then. This is the past, even if the recent past. Inflation is now rising much faster than pay, pensions and benefits, because of what the Bank of England describes as an unprecedented succession of shocks, that began with Covid’s disruption to global supply chains and has been 'apocalyptically' magnified (as per the Bank governor’s fears) by war in Ukraine.

With inflation most acute in the basics of living – energy, food – it is the poorest who are suffering most. At least six million British households were spending every penny of their income even before the price surges. They have no cushion of savings to take the strain when the price of bread and heating leaps. For them rampant inflation means making do with less, often much less.

What is perhaps odd in the failure of the government to help the poorest with its refusal to up-rate benefits and pensions by at or near the inflation rate, is that this short term economy can be seen as self harm for everyone, and not just because of empathy for the poorest. The point is that when cash is dispensed to the poorest it is automatically spent, it is never saved, and therefore at a time of recession and longer-term low growth it provides a powerful counter-cyclical boost to struggling businesses and indirectly to all of us.

As the chairman of John Lewis and former Treasury official Sharon White said on my show last week, there is a powerful case for the government to show the ambition it demonstrated in the Covid crisis in addressing the worst global supply side shock since at least the 1970s and maybe longer. She wants government subsidies to knock £1,000 off next winter’s energy bills, at a cost of £30 billion.

Others think help should be more targeted to those with least, through the Universal Credit system. What does differentiate this crisis from both the Covid and banking ones is that the Bank of England is powerless to help, as it admitted yesterday, because inflation is surging and it has no choice but to increase the cost of money to bring inflation back to target.

So everything it is doing has the effect of making us poorer in the short term. The most important message from the Bank governor yesterday was 'over to you Prime Minister' – which is not what he wants to hear when Labour has organised a vote today to create pressure for a windfall tax on the excess profits of oil and gas producers.

Johnson will be looking anxiously at how many of his Tory colleagues show support for taking from Big Oil to give to the frailest. Many of them are bemused by his deep wells of sympathy for Shell and BP.