Why Pay Freezes wont work

It is widely reported that the chancellor, Rishi Sunak, intends to impose a pay cap on most public sector workers.  Sunak is expected to usher in a new era of public sector pay restraint as he is faced with a deficit that is on course to hit a peacetime record in 2021.  We should view this move as the attack upon those for what it is, an attempt to weaken and undermine organised labour and pay ​restraint ​for all but frontline NHS staff an attempt to divide workers and avoid public outcry.

Unions reacted angrily to the prospect of a wage freeze, Mark Serwotka, general secretary of the Public and Commercial Services union, said: “Civil servants along with millions of other public sector workers have kept the country running throughout this pandemic, and the last thing they deserve is another pay freeze.”

A new report by the Centre for Policy Studies (CPS) said private sector workers had suffered far more from the economic impact of the disease.  The centre-right think tank said measures were needed to ensure the labour market was not unfairly weighted towards the public sector.

Ive no doubt that the chancellor will attempt to use the Pandemic as an excuse for Austerity 2 but this is the wrong approach and yet again the conservatives appear to fail to understand lessons from Austerity 1.

Stifling wages below inflation should never be accepted.  Instead we should set out a program that will see a return to 2008/10 levels of pay over the short term.  With a minimum of inflation+ thereafter

There is a very good reason why Neo Liberals like Austerity as since austerity 1 public sector employees, who he proposes to further restrain, have seen their wages fall in real terms by 20% whilst the richest have seen their collective wealth grow by hundreds of billions of pounds

Alfie Stirling wrote for Left Foot Forward about NEF analysis showing the true economic impact of austerity:

“The calculations make for grim reading. The isolated impact of government policy has reduced GDP growth every single year since 2010.

After compounding this effect year-on-year, the effects of austerity are expected to have suppressed the level of GDP by almost £100 billion in the 2018/​19 alone.

To break this number down another way, it means that deliberate policy from government over the past nine years has had the standalone effect of suppressing incomes and expenditure in the economy by just under £1,500 per person and more than £3,600 per household, in this year alone.”

Our call must be to borrow more, employ more and spend more to drive the economy as it has never been so cheap for the government to borrow money and the government should take full advantage of the markets to issue bonds that can be paid back over decades or even centuries, we recently learned that Britain used 40% of its national budget to buy freedom for all slaves and the monies were only paid off in 2014, 181 years later.

Wage restraints will have a negative effect upon the economy and for the current economic model to survive we need money to enter and move about the local economy. When we get paid properly we buy more and thus more people are employed to service that buying.

What we need to drive the economy is large scale spending, and spending on activity where the main cost is wages to a directly employed workforce which is why large infrastructure projects are often the key as, they cannot be shipped in, or outsourced to other countries but are done by people living in the local area with PAYE going back to the treasury and their pensions invested in infrastructure and reducing the future dependency upon the public purse.

The government should invest extensively on labour intensive works such as

  • Solar and wind farms from manufacture to installation
  • Insulating homes from manufacture to installation, with a means tested contribution from the householder which would replace the flaw in the current scheme which only supports those who can afford a significant contribution.
  • Reforesting and creating habitat
  • Flood defence and repairing waterway erosion
  • Creating cycle and walkways.

Writing in Tax research UK (14/05/20)Richard Murphy writes

The cost of UK government borrowing 1946 to 2020

I have already shown that there is nothing exceptional, odd or worrying about UK public debt now, and will not be even if it increases significantly.

But it’s not the debt people say that they worry about: they say that we should worry about the cost.

Well, that’s not an issue either:


Data is from the House of Commons Library GDP data is from the Office for Budget Responsibility.

“In cash terms, we have the highest government debt we have ever had.

But the cost is exceptionally low, and even if we increase what is described as borrowing as a consequence of coronavirus the impact will still be very small given current, exceptionally low interest rates, which look like they will persist for a very long time.

Please do always recall, that every penny the government spends on interest becomes someone’s income – and most of it in the UK.  And there is good reason for that: UK national debt is just a savings mechanism.

There is nothing more menacing or threatening about it to our wellbeing than the amount saved in banks and building societies.”

Jobs Support Scheme – Sunak Must Do Better!

Rishi Sunak has released his Job Support Scheme and upon scrutiny he must do Better

What is the Job Support Scheme? 

  • The Job Support Scheme will run for six months from 1 November.
  • It will top up salaries in companies which can’t take employees back full-time.
  • To be eligible, employees must work for at least one-third of their normal contracted hours.
  • For the hours not worked, the government and employer will each pay one-third of the remaining wages. This means the employee would get at least 77% of their pay. 

What other jobs help is on offer?

To minimise unemployment, the UK government will also give firms:

  • £1,000 for every furloughed employee kept on until at least the end of January
  • £1,500 for every out-of-work 16-24 year-old given a ”high quality” six-month work placement
  • £2,000 for every under-25 apprentice taken on until the end of January, or £1,500 for over-25s

But will it incentivise businesses to keep employees in work?

In an example where the employer has 3 staff, the demand has fallen by 2/3 those 3 staff would work 1/3 of their contracted hours but will be paid 55% of their wages by the employer, 22% by the treasury and take a hit for 23% of their wages.  So the employer gets 1 FTE (Full Time Equivalent) work but pays for 1.65 FTE.

If the employer dismissed two of the staff and just had one working full time then they would pay 1 FTE.

So what then will be the considerations for the employer?

It is likely that those highly skilled workers, along with those for whom it would be expensive to dismiss in terms of redundancy pay will be kept on, but low skilled workers will lose their jobs as there is no incentive to the employer for keeping them on. 

Again we see how strongly unionised workplaces will fair better than those non unionised ones 

What alternatives are there?

One simple answer is to scrap the £7.5bn JRB (Job retention bonus) which is paid to employers who retain workers the consideration being that those workers were likely to have been kept on anyway so the £1000 payment was unnecessary and should be used to meet the shortfall in wages for those workers only working 1/3 of the time. This short hours scheme will incentivise employers to keep those staff.

In Germany the Kurzarbeit, effectively a social insurance programme, and an alternative to redundancy. Under Kurzarbeit, employers reduce their employees’ working hours instead of laying them off. But the largest portion of the workers’ lost income is picked up by the state.

Better unemployment benefit in line with the rest of Europe or better still it would seem then that both the government and the employers have accepted the fate of the retail high street to be a bad one but if, as the CEO of next argues, this is so then why are we not embarking on mass training schemes to give people skills for the future whilst these wont necessarily be building solar and wind infrastructure they could well be within the internet based retail economy.

Shadow chancellor Anneliese Dodds said that his latest measures, which will replace the job retention scheme that paid 80 per cent of furloughed employees’ wages, will not save masses of jobs from being lost.  Dodds said the “million-dollar question” was whether the wage support scheme would fail to incentivise employers to keep workers in their jobs.  She told Radio 4’s Today programme that “unemployment levels are rising very substantially, they’re going back towards 1980s levels.”

The Resolution Foundation think tank also warned that the “winter economic package” would not help turn the tide on unemployment.  Chief executive Torsten Bell said: “Design flaws mean that the new [scheme] will not live up to its promise to significantly reduce the rise in unemployment.”  He added: “Those mistakes could be addressed by scrapping the poorly targeted £7.5 billion job retention bonus, and using those funds to ensure the new support scheme gives firms the right incentives to cut hours rather than jobs.”

Trade Union Congress (TUC) general secretary Frances O’Grady warned there is still “unfinished business.” She said: “Unworked hours under the scheme must not be wasted.  “Ministers must work with business and unions to offer high-quality retraining, so workers are prepared for the future economy.  “The government should target help at industries facing a tough winter, and provide more support for families most at risk of hardship and debt.” 

PCS general secretary Mark Serwotka called the measures “akin to using a plaster to cover a gaping wound.”  “Our members in the commercial sector, aviation and culture are already being threatened with hundreds of redundancies, as employers seek to capitalise on the economic fallout from Covid-19,” he said.  “The Tories’ ideological opposition to increased state intervention is hurting the economy and costing people their livelihoods right now.”

Centre for Labour and Social Studies (Class) director Dr Faiza Shaheen called the announcement “too little to late” for those who have already lost their jobs, and for the sector’s hardest hit.   She said: “What Britain needs is a real budget that sets out how departmental spending would boost a recovery, generate jobs and provide real ‘level-up’ equality. We need more vision and a real industrial strategy.”  Dr Shaheen said the Conservatives’ approach to the economy is “increasingly looking chaotic and reactionary.”

Labour MP Richard Burgon called for a more radical approach, noting that Britain was facing the worst recession in Europe because of “systemic failings.”  He called for “a united programme of demands that we coordinate the whole left around: the left in parliament, the unions, the party membership and social movements,” calling for adoption of a zero-Covid strategy and Labour to campaign for a programme of public works and the Green New Deal to “force the government to change track on health and the economy.”

Author: 

Kevin Allsop, Treasurer, Bolton TUC