The spring statement comes in the context of the illegal Russian invasion of Ukraine, posing a terrible toll on the Ukrainian people. The TUC has called on the government to support all efforts towards a diplomatic resolution of the conflict, and written to the Chancellor to ensure that sanctions are backed by effective enforcement, and that we provide the funding to secure support both for humanitarian aid and for refugees to come to the UK.
The conflict is also leading to significant price rises, leading to further pressures on working people in the UK. Without action from the Chancellor, workers are being walked into a cost-of-living crisis, while energy companies see their profits soar.
This week’s figures (using the CPI measure of inflation) meant that real pay for workers is falling by 1.5% on the year, the worst for eight years. If you use RPI, it's the worst in over a decade: falling by 3.5%. But this year’s pay squeeze hasn’t come from nowhere. Even ahead of the crisis in Ukraine, energy price rises were expected to mean even higher inflation to come. In February, the Bank of England were expecting a 2% real pay decline in 2022 and only marginal increases of ½ per cent in both 2023 and 2024. The UK economy will be characterised by low real pay, low spending and low growth (dismally: 1¼ % in 2023 and 1% 2024).
The Chancellor needs to learn the lessons of the pandemic, and act now to support workers from threats beyond their control. That’s the best way to protect working families and the economy.
Longest pay crisis since the Napoleonic wars
Workers’ real pay is still below where it was before the global financial crisis – this means that workers’ purchasing power has fallen short of the position in 2008 in every year, and the Bank of England expect this to continue until at least 2024. This is wholly unprecedented, with only the experience through the Napoleonic Wars (1798-1822) worse.
And UK workers have had it tougher than workers across other rich economies. Our new analysis of comparable real pay figures across OECD economies shows the UK fifth from bottom of 33 OECD countries. This looks at the annual average real pay growth since the global financial crisis in 2008 through to 2021, with OECD forecasts used for 2021 as outturn data are not yet available. The UK decline averaged 0.2 per cent a year, when the average across all OECD countries was an increase of 0.8 per cent a year.
Public sector workers have suffered some of the worst pay cuts, following government imposed pay restraint throughout the 2010s. And this is again intensifying, with real pay falling over the year to the fourth quarter of 2021 by 1.6% in health, 4.6% in education and 4.2% in public administration. And we know from the Treasury’s evidence to the pay review bodies that the government is already backing down on its phoney pledge to give all public sector workers a real terms pay rise.
The failed economics of inaction
But it’s not just about public sector workers, the Governor of the Bank of England’s call for wage restraint across the economy was met with astonishment and anger by workers and trade unions.
After a decade of austerity when both public and private sector pay went nowhere, workers’ are asked again to suck up more falls in the standard of living. When will they take on board that cutting pay hits spending and damages the economy? The bigger the damage, the bigger the impact on public finances.
On the other hand policymakers seem determined to fill the pockets of the wealthy, when we know they spend far too little of their massive gains (“the rich can only throw so many million dollar birthday parties”, as economist and FT commentator Matthew Klein put it at a TUC event last year). TUC and High Pay Centre analysis showed how over 2014 to 2018, dividends to FTSE 100 shareholders rose by 58.3 per cent while average UK worker wages increased by just 8.8 per cent (in nominal terms). Right now, the government are letting energy companies rake in profits – while workers struggle to pay their bills.
Deliver an immediate boost to pay
Fund efforts towards a peaceful solution to the conflict in Ukraine
Take additional measures to support families in the UK with rising energy prices
Deliver the long-term changes needed for a high-wage, high skill, high productivity economy
The Chancellor should also set out how the government will deliver the changes needed to achieve the Prime Minister’s ambition of a high wage, high skill, high productivity economy. These include:
There is still the chance to fulfil the promise to build back better after Covid. The Chancellor must commit to that at the spring statement.
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