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Boris Johnson says workers should accept a pay cut to avoid spiralling inflation – is he right?

The PM claims we must accept falling wages to prevent spiralling inflation, writes Ben Chapman. But experts say this fundamentally misunderstands the problem

Wednesday 22 June 2022 02:55 EDT
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Rail workers are among those seeking to strike
Rail workers are among those seeking to strike (EPA)

Boris Johnson wants British workers to take one for the team and accept pay cuts in the face of soaring living costs.

Faced with a wave of strikes and a “summer of discontent”, the prime minister says pay rises are not the solution to a surge in prices, warning that: “If wages continue to chase the increase in prices then we risk a wage-price spiral such as this country experienced in the 1970s.”

But is he right? Many experts are sceptical and argue that further restricting salaries would actually worsen the country’s deep economic problems.

We already face the biggest annual fall in living standards on record, capping 12 years of historically poor wage growth and a sluggish economy. Britain is expected to register zero growth next year, worse than any other developed nation apart from sanctions-hit Russia.

The prime minister’s approach means the government is pitching its tanks on the lawn of ordinary public sector workers ready to fight them over pay. Telling ordinary folk to roll over and accept a pay cut is a risky position for a prime minister increasingly seen as out of touch after Partygate. But Johnson is apparently banking on the fact he can pit workers against each other, as Labour has suggested.

Treasury minister Simon Clarke picked up the baton on Monday, arguing that “People have to recognise that if we’re going to forestall the evil of inflation ... then we're going to have to show collective society-wide responsibility.”

He failed to mention that MPs’ wages have risen by 28 per cent since the Tories came to power in 2010. While that’s stills slightly below inflation during that time (34.2 per cent), it’s much better than the pay deals handed out to many key workers, from barristers to nursery nurses.

Criminal barristers are set to stage a walkout next week, demanding a 15 per cent pay rise after years of cuts to legal aid that have caused a massive backlog of cases and left average annual income in the sector at just £12,200 in the first three years of practice.

Chief secretary to the Treasury, Simon Clarke, has warned of a 1970s-style wage-price spiral
Chief secretary to the Treasury, Simon Clarke, has warned of a 1970s-style wage-price spiral (PA)

Teaching is in the midst of its own recruitment crisis. Last year, pay remained 8 per cent lower in real terms than it was in 2007, the Institute of Fiscal Studies calculated. Senior staff have seen even larger falls. A pay freeze this year as inflation soars would mean teachers have seen a 19 per cent cut in wages since 2010 according to the NASUWT union.

Early years education is also facing serious problems with the supply of childcare failing to keep up with demand. Nursery nurses’ average pay has risen from £12,514 when the Tories came to power to £14,462 last year. The rise of 13.4 per cent, means a real-terms pay cut of almost a fifth, from a very low base.

Despite this, the cost of childcare rose sharply in that time and is now prohibitively high for many working families. This has forced some working parents – particularly young women – to stay at home or reduce their hours.

The NHS has received many kind words from government ministers during the pandemic but pay increases have been less forthcoming.

Research by the Health Foundation found that between 2011 and 2021, doctors saw the spending power of their earnings fall £779, while nurses and health visitors had a cut of £1,583 and midwives £1,813. Across the service, average annual pay declined £416.

The government has pledged to be tough on crime while handing police officers some of the worst pay deals in the public sector. Officers ranked sergeant and below saw pay rise from £38,521 in 2010 to £41,180 last year, according to official figures. Inflation means officers have effectively been handed a significant pay cut and that doesn’t take into account the latest surge in prices.

While some groups have been hit much harder than others, the problems are deep-rooted and span across the economy.

When adjusted for inflation, UK workers are still earning £60 a month less in real terms than in 2008, making this the worst period of wage growth for 200 years.

You would have to go back to the Napoleonic Wars to find a period that has clobbered the average worker’s spending power so savagely.

Police officers have seen large real-terms pay cuts since 2010
Police officers have seen large real-terms pay cuts since 2010 (PA)

“It is completely legitimate for workers to ask for pay increases when living costs are rising so fast,” argues Miatta Fahnbulleh, chief executive of the New Economics Foundation (NEF).

Private sector workers saw an average fall in their real earnings of 1.6 per cent between February and April – one of the largest quarterly falls on record. For public sector workers, the decline was an unprecedented 4.5 per cent.

“I can’t emphasise enough how brutal this is, after 10 years of pay restraint. It is the people least able to withstand the price hikes we are seeing that are going to take the hit.

“It will be really painful for people, which is why we are seeing so much discontent.”

The problem of wage stagnation is not new and is the “question of our time”, says Fahnbulleh.

To fix it requires a fundamental reassessment of the government’s understanding of the problem, as well as major reform to boost investment in things like skills, infrastructure and research.

Excessive wage restraint risks repeating a central mistake that has held the country back since the financial crisis, warns Fahnbulleh.

The UK needs increases to pay, not decreases. That will help to boost businesses’ revenues and encourage them to invest, jolting the economy back to life after years of stagnation.

The NEF is calling for significant increases to the minimum wage and more collective bargaining to ensure that workers can negotiate a fair deal.

Stephen Millard, deputy director at the Niesr think tank says the prospect of a wage-price spiral is remote, given the “hefty” pay cut that workers face this year.

Instead, he argues that the government should look at its own role in creating the current wave of unrest.

“It could have increased public investment but chose a period of austerity. As a result, we are stuck in a low growth, low investment, low productivity economy.”

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