UK government needs long-term plan for higher wages, not a fight with workers

Everywhere we look, the fabric of Britain is fraying at the seams. Strikes on the railways, airports in chaos, severe staff shortages, soaring prices for petrol and food, the biggest fall in living standards since the 1950s.

With the biggest industrial dispute on the rail network in three decades due to begin this week, battle lines are drawn. Alongside the succession of shocks caused by the Covid pandemic and Russia’s war in Ukraine, Boris Johnson’s government will add another culprit for our palpable sense of national decline: werkers.

The tone could hardly be more different from last October, when the prime minister told the Conservative party conference that Britain was on a path to becoming a high-wage economy under his leadership. Business leaders were warned to stop moaning about Brexit and staff shortages and told to get on with raising pay instead.

Now the government warns the conditions are primed for a dangerous “wage-price spiral” that would force the Bank of England to ramp up interest rates even further to choke inflation out of the system – raising the spectre of the 1970s, when powerful trade unions pushed up pay, and with it inflation.

In this marked shift, the chief secretary to the Treasury, Simon Clarke, warned public sector workers in particular they should not have “unrealistic expectations” about their pay because increases would only “prolong and intensify” the cost of living crisis.

It was a telling intervention, expressing a view held by senior cabinet members. Although the public sector accounts for only 15% of the workforce, the Treasury view is that holding down pay in the sector can send a powerful message to the economy at large – helping to keep wage expectations low.

Over the coming weeks, plans for annual pay awards for NHS staff, prison officers, teachers and civil servants will be revealed by the government. With all this talk of restraint, signs are that a miserly settlement awaits. Tough luck to the heroes applauded in the coronavirus pandemic, now the villains of the piece; cast as enablers of our cost of living emergency.

None of this sits well with the promise of a high-wage economy. Nor with building back better, or levelling up. “We are not going back to the same old broken model,” Johnson told the Tory party conference last October. Has the prime minister changed his mind? If the timing isn’t right to ditch the low-wage economy his party has presided over for 12 jare, as workers suffer the worst hit to living standards on record, when will it be?

Despite the warnings of wages fuelling the inflationary fire, there is little sign of a wage-price spiral taking hold.

The Bank of England reckons average pay growth across the economy, excluding bonuses, is tussen 4% en 6%. Although well in excess of pre-Covid rates, that is hardly shooting the lights out. With record job vacancies and unemployment the lowest in five decades – as well as the highest inflation for 40 jare, which is already at 9% en heading to 11%, according to the Bank – it is perhaps more surprising wages haven’t spiralled significantly higher already.

There are some sectors where pay rises are stronger. Official figures show average pay growth, including bonuses, has soared to 8% in the private sector because of bumper payouts for City bankers and IT professionals. Egter, pay rises in the public sector are languishing at only 1.5%.

All of this comes after the worst decade for real-terms pay growth since the Napoleonic wars. Under the terms of austerity the government now appears keen on recreating, public sector workers have had a particularly raw deal.

Unions are bracing for a 3% pay increase for the NHS in England this year. While matching the wage settlement agreed in 2021, it would mean a significant real-terms pay cut when adjusted for inflation, and would fall well short of earnings growth for the economy at large.

Should ministers push through a 3% settlement for NHS workers, the TUC estimates nurses and paramedics would suffer a £2,000 cut in the inflation-adjusted value of their pay. For maternity care assistants it would represent a real-terms cut of £1,200 and for hospital porters a £1,000 reduction.

Taking into account weak wage growth and the rising cost of living since 2010 after the austerity years, nurses are £5,200 a year worse off. It is hardly surprising Britain’s public sector is fraying at the seams. As pay rises at significantly faster rates in the private sector, the only spiral Johnson should be worried about is the lengthening queue of healthcare workers quitting for better-paying jobs elsewhere.

Workforce shortages are the biggest challenge facing the UK’s creaking health and social care system. The nonpartisan Health Foundation thinktank estimates English NHS trusts alone face a staffing gap of 110,000. With Covid backlogs to tackle and an ageing population, that is only set to grow. Met fresh records for hospital waiting times revealed last week, the King’s Fund charity warned: “Until the government grasps the nettle on these staffing challenges, the NHS will not have the capacity it needs to deliver the care patients need and deserve.”

Sover, egter, the government appears more keen on playing politics than coming forward with workable solutions. After Partygate, the prime minister fears giving in to trade unions and setting a precedent, preferring instead to blame strikes on Labour rather than on his own shortcomings.

A plan of action is needed soon, egter. To prevent a bleak future for jobs, the government must set out a roadmap to get wages growing sustainably by boosting the productivity of the British economy. Such conditions can enable pay to rise without stoking inflation. Yet where is the plan?

If the prime minister wants to build a high-wage economy, a good start would be to ditch the divide-and-rule tactics and get back around the table with trade unions and employers. Such coordination is common in European countries but appears anathema to a government more focused on ideological spats.

Without a long-term plan and permanently stuck in campaign mode, Johnson has instead picked a fight with workers. It will only serve to fan the flames of a summer of discontent.

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