If Boris Johnson wants to see higher wages his government should lead by example
A 15 per cent NHS pay rise and a £15 minimum wage are not only fair, they would help fulfil the promises made at the last election, writes Paddy Bettington of the Centre for Labour and Social Studies (Class).
Boris Johnson’s Conservative government has a new favourite catch-phrase to distract from the whirlwind of failure that surrounds them: the high-wage economy.
Johnson has claimed that we are seeing “growth in wages, after more than 10 years of flat-lining”. But the reality is, the government’s reporting of a rosy-looking economy will be at odds with many people’s reality of rising energy bills and living costs as we head into Christmas.
Headline figures showing increasing wages even survived recent figures measuring inflation. On average, they showed a real-term pay increase. That is, even after accounting for the cost of living increases and energy price hikes, the country has had a pay rise.
However, as is so often the case, the average for the country does not tell the full story. Analysis by CLASS think tank shows that significant pay rises for the top 5 per cent of earners are masking a less hopeful tale for everyone else. In 2021, the lowest 25% of earners saw a real-term loss in earnings, the next 70 per cent saw increases of less than 0.5 per cent, while only the top 5 per cent saw a significant increase.
A similar story is true when looking at regions of the UK. While the UK as a whole has seen a minuscule increase in real-term pay, this is the result of a significant rise in the East, Southeast and Southwest, with decreases in every other region.
April will bring a new rise in the minimum wage, bringing it to £9.50 for everyone over 23. It will also bring a new energy price cap, with some researchers predicting a 30 per cent increase. More generally, the Bank of England expects that inflation will continue to rise until spring, peaking at around 5 per cent.
However, it is unclear whether or not this increase in the minimum wage will be a real-term increase at all or whether it will even keep pace with increased living costs.
These estimations are complicated by how inflation is calculated. Changes in the cost of hundreds of goods and services are recorded, and an overall rate is arrived at based on how much of each item goes into the average consumers’ basket’. In response to drastic changes in people’s day to day lives and spending patterns during the pandemic, the method of calculation – the amount of each item in an average basket – was adjusted in 2020. This change has yet to shift back, even as people return to shops, bars and restaurants. Keeping track of consumer patterns during a constantly evolving economy is obviously tricky, but for anyone living closer to their pre-pandemic life, the latest inflation figures are probably an underestimate.
Once again, using averages gives an overly optimistic view of what life will feel like for many people. For instance, for lower earners, energy bills make up a bigger portion of their overall budget, so inflation that is driven by energy prices will disproportionately impact people on low wages.
Last month the government announced they were cancelling huge sections of the planned new rail infrastructure in the Midlands and north of England. This week it was confirmed that the long-awaited white paper on levelling up has been delayed until next year. Now, this analysis shows that for the lowest earners, and those outside the South of England, 2021 will have seen them levelled down yet again.
In October’s budget, Sunak trumpeted the reversal of some of the cuts made by his own government since 2010, as well as ultimately insignificant changes like taxes on prosecco. But for most people, the budget boiled down to two points: a tax rise that disproportionately impacts low earners, and rising living costs.
If the government is serious about its levelling up agenda, it needs to listen to workers and the trade unions that represent them. NHS staff, who for a few short months last year were hailed as national heroes, have called for a 15 per cent pay rise to account for their decade-long pay freeze. Yet they have been offered a 3 per cent increase – below inflation, a real-terms pay cut – while waiting for an independent pay review.
Alongside this call, at the Labour Party conference, members and trade unions voted to support a £15 minimum wage. It is these ambitious demands that stand a chance of truly levelling up the lowest earners and poorest regions of the UK. Rather than spouting rhetoric that appeals to voters while allowing people’s lives to become gradually less secure, the government should be bold and create the high-wage economy it claims to want.
A 15 per cent NHS pay rise and a £15 minimum wage are not only fair; they would help fulfil the promises made at the last election, and they would put money in people’s pockets and support the broader economy.
Billionaires’ share of wealth has rocketed as a result of COVID. In the UK alone, 24 people became billionaires during the pandemic. Yet, the government decided to increase a tax that only affects earnings and not wealth. Levelling up the sections of our society that have been held back for so long is urgently necessary, and a high-wage economy is a noble aim.
However, the role of a government should be more than saying what it thinks voters would like to hear and then sitting back while that doesn’t happen. If Johnson wants to see higher wages – and not just for the top 5% – his government should start by paying them.
Paddy Bettington is a research officer at the Centre for Labour and Social Studies (CLASS), a leading left think tank working to ensure policy is on the side of everyday people.
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