At 8.7%p.a., inflation in the UK is higher than in other high income countries. It is driving a steep decline in living standards, a further decline in public services, and continued increases in already high levels of inequality. It is these consequences of inflation that need to be addressed. It is therefore strange that the only tools being used to tackle the problem are measures that will only have an impact on inflation by making each of these more fundamental problems worse.

Inflation is caused when demand for goods and services exceeds the capacity of the market to supply them, enabling producers to charge higher prices. Increased interest rates are supposed to slow inflation by taking money out of the economy and thereby reducing demand. This makes it harder for firms to raise prices or pay higher wages.

Interest rate increases are the only policy instrument available to the Bank of England for reducing inflation to the Government target of 2% per annum. If the only tool you have is a hammer, then everything looks like a nail. Interest rate rises are hurting everyone with a mortgage, everyone who rents and finds the cost and availability of accommodation suddenly much reduced, everyone who is struggling with debt, everyone who finds their wages buy less and their jobs are at risk as employers also struggle with increasing debt service. The current Bank of England Governor has said that a recession is an acceptable cost for reducing inflation.

The logic of this ‘Sado-monetarist’ approach is questionable in current circumstances. The high inflation was caused by supply shocks, and the persistence of inflation is not due to excessive monetary growth. The Government should not end the independence of the BoE, but it might re-frame the inflation target in less absolute terms, perhaps in reference to rates in competitor countries or as a direction of travel rather than as something to be achieved irrespective of cost or circumstances.

Even if the prescription were sound, the way it is being implemented should not be. Those who are hardest hit by interest rate rises and public expenditure cuts did not cause the problems but are those least able to bear the cost of fixing them.

Ideally, it would be preferable to close the gap by increasing supply through higher economic growth, rather than by squeezing demand. We need an approach that puts a lot more emphasis on protecting people from the harms that inflation causes in the short term, while building stronger and more sustainable growth that will begin to reduce it. This is easier said than done. It will require increased Government spending.

The starting point is not great . Government debt of 100% of GDP and taxation headed towards 38.5% of GDP are high by UK historical standards, reflecting the legacy of unrestrained spending to cope with the pandemic, especially the furlough scheme. In these circumstances, the Government strategy envisages reducing the Government deficit and the debt burden in the medium term through ‘stealth taxes’ ( not adjusting allowances for inflation) while planning for further steep cuts in public spending. These measures were intended to have their main impact after the next general election. Higher than anticipated inflation has brought forward the pain, creating a political problem for the conservatives. The Government faces pressure to use any spare revenue for tax cuts for potential Tory voters.

Using Government revenue to improve public services and provide help to those in need will have a far greater and more immediate impact on economic growth than tax cuts. The money will be spent, not saved, thereby stimulating output and investment. With economic growth still sluggish it is unlikely to cause inflation to accelerate, though measures such as pay increases for public sector workers may limit the speed at which it is reduced.

Our current tax take of about 38.5% of GDP is not especially high compared to other wealthy EU countries. If we want European standards of public services we will need to accept European levels of taxation to pay for them. Inflation raises the cost of everything the Government spends money on- but it also sharply increases Government tax revenues. The Government decided to freeze income tax allowances when inflation was far lower. These stealth taxes are now likely to raise more than four times as much revenue as was originally expected. They are not the best way to raise the extra revenue we will need: there are plenty of other ideas out there for raising extra revenue in ways that are efficient and fair. Paul Johnson’s excellent new book‘Follow the Money’ reviews most of them. He also makes the point that, even after making use of windfall taxes and the potential for imposing higher taxes on capital, the sums required can not be raised just from the very wealthy.

A policy focused on minimising the negative effects of inflation rather than just the headline rate might result in inflation coming down more slowly. That would be preferable to the catastrophic collapse in living standards that is in prospect if current policies persist.