Ending the Pay Crisis

 

The best way to ensure decent work, and workers who are happy to work in these jobs, is through collective bargaining between workers and employers – a flexible way to drive up conditions, discuss recruitment and training, and ensure fair pay. This approach has been common across Europe for decades, and Governments across the world from the US to New Zealand, are now recognising the benefits, with New Zealand introducing new fair pay agreements to regulate pay and conditions across sectors through bargaining.16

The government’s long delayed employment bill offers a further opportunity to support this approach through strong legislation, including a ban on zero hours contracts, and fair scheduling rules to ensure decent notice for shifts, payment for cancelled shifts, and a right to guaranteed hours. Government should:

• allow trade unions to access workplaces to tell people about the benefits of joining a union
• begin the process of setting up fair pay agreements which allow workers to negotiate a minimum rate for the job across whole sectors
• finally introduce an employment bill that bans zero hours contracts, and fair and fair scheduling rules to ensure decent notice for shifts, payment for cancelled shifts, and a right to guaranteed hours.

Government must act to close pay gaps

Government must take measures to support equal pay including strengthening the gender pay gap reporting requirements, and introducing ethnicity and disability pay gap reporting.

Pay gap reporting measures should require employers to publish actions plans on what they are doing to close the pay gaps they have reported. Action plans should cover recruitment, retention, promotion, pay and grading, access to training, performance management and discipline and grievance procedures relating to staff and applicants. It is vital that intersectional issues – for example, those affecting disabled women – are acknowledged and addressed.

Government must use fiscal policy to support higher pay

We are concerned that policymaker’s (ongoing) reaction to the present inflation will needlessly make matters worse for workers. As we set out above, the strength of the economy and pay growth is exaggerated, and action based on the idea that pay is rising strongly will further threaten recovery. Holding back pay in order to protect assets held by the wealthy from inflation is not the right strategy. As trade unions have always understood, doing so is counterproductive both in terms of fairness and in terms of a stronger economy. The present inflation should not be one of a number of repeated excuses to avoid action to build back better.

According to the Treasury and the Bank of England, fiscal and monetary policy need to be tightened to reduce activity, restrain pay and improve the public sector finances.17 We argue instead that higher pay and so higher spending power are necessary to support the economy in the short term and as foundations to building back better.

The government should learn from both the good lessons of the pandemic and the bad lessons of the austerity decade. Under the furlough scheme the government supported businesses to pay wages, and in doing so sustained household spending. Other government expenditure, not least on healthcare, also served to support the wider economy, and those of other countries. These actions aided a rapid recovery from lockdowns, and also meant that the hit to public finances was far lower than expected. For example public sector net borrowing in 2021-22 was expected in March 2021 to be £234bn, and this was reduced to £183bn in October, and is currently running £18bn below that forecast.18 The contrast with the austerity decade could not be sharper, when reduced spending on public sector salaries, investment and services reduced incomes and spending in the economy. The consequent greatly slower growth meant the public debt ratio was not reduced at all. 19

Yet inflationary pressures have led again to the approach that has been so toxic over the past decade. In particular, the government has restored the zero-sum thinking that dictates its approach to pay. Last year’s promises of a real terms rise to public sector pay across the board have been disregarded. The Treasury submission to pay review bodies now calls for restraint.20

As set out above, this is precisely the wrong approach. The idea that pay in the private and public sector should broadly match on average is nonsensical.

---

The response we need from government: immediate action to tackle the rising cost of living - and action to ensure our response to the invasion of Ukraine is effective

As we set out in a letter to the Chancellor on the 2nd of March, the Trade Union movement is united in its condemnation of Russia’s illegal invasion of a sovereign nation. Our solidarity is with the working people of Ukraine. Working people always suffer in conflict and the pursuit of peace is a fundamental trade union value, an essential condition to secure safety, social justice and workers’ and human rights.

The UK government must now take further action to support and strengthen international efforts to impose significant and effective sanctions on Russia and to support all diplomatic efforts towards peace. And it must play its part in supporting humanitarian assistance for forcibly displaced people and welcoming refugees seeking to come to the UK.

The government must also ensure that it takes every step possible to protect working people here at home from the impact of the conflict and measures taken in response to this. This must include addressing longstanding issues – including inadequate social security, sick pay, and childcare, that have made working families more vulnerable to the impact of price rises.

Measures in direct response to the conflict:

 

Target sanctions on wealthy elites linked to the Russian government - and ensure they are effective

• We welcome the proposed register of overseas owners of UK property through the Economic Crime (Transparency and Enforcement) Bill, but this needs to be backed up by sufficient powers and funding for Companies House to enforce

Fund humanitarian assistance for displaced people, and welcome refugees to the UK

• The new Ukrainian visa proposals are inadequate and fall well short of what is needed. Limiting asylum to Ukrainian immediate family members, of those already settled in the UK, will not reassure Ukrainians fleeing war and bloodshed that they will be able to seek sanctuary in our country. The government must establish a safe route, so all Ukrainian families, who through no fault of their own have been forced from their homes, can eas ily apply for a humanitarian visa to travel to the UK. The Nationality and Borders Bill must be scrapped. Thousands of Ukrainians fleeing war may try to find sanctuary in the UK. If the Bill is passed many of these Ukrainians, along with others around the world fleeing conflict, threats to their lives and seeking safety may find themselves treated as criminals and deported, instead of being offered sanctuary.
• Government should consider implementing a new 100 per cent tax on additional profits made by UK based companies from their shareholdings in Russian state backed enterprises that have profited from the gas price crisis – for example, profits made by oil company Vitol from its shareholdings in oil and gas fields in Russia in a joint venture with state-controlled companies Rosneft.

Measures to tackle the impact of rising prices and support families with the cost of living:

 

Protect working families against rising gas prices, by raising funds through a windfall tax on energy profits and the tax on profits made by UK companies invested in Russian state businesses.

The current energy price crisis is hitting workers hard, and prices are likely to rise further. Government should implement existing TUC calls for:

• Support for households in the form of a grant, not a loan (replacing the energy price rebate proposed by the government).
• An increase in the warm homes discount.
• Rapid implementation of an accelerated and expanded domestic home retrofit programme, delivered by local councils who are best placed to deliver fast
• Funding for these measures by the implementation of a windfall tax on north sea oil and gas companies’ profits.

Protect jobs in supply chains now and build future supply chain resilience.

For companies sourcing parts and supplies from Russia, sanctions could have a significant impact. To protect jobs, the UK government should:

• Re-introduce the furlough scheme or a permanent short-time working scheme in order to allow companies to protect jobs while they seek to shift their supply chains. 21
• Begin an urgent programme to provide investment support to help companies to invest in UK supply chains and jobs.

Fix the holes in the safety net which have left working people vulnerable to rising prices

The degradation in the level of social security over the last decade has meant that families are significantly more vulnerable to the impact of rising prices. There are now over a million more working people claiming Universal Credit than at the start of the pandemic,22  and although the reduction in the taper rate announced at the last budget will provide some additional support, they still face a significant squeeze on their incomes, with those who have lost their jobs hit even harder.

• The basic level of Universal Credit and legacy benefits, including jobseekers allowance and employment and support allowance, should be raised to a value worth at least 80 per cent of the national living wage.
• The arbitrary benefit cap should be removed permanently.
• The government should significantly increase benefit payments to children and remove the two-child limit within universal credit and working tax credit.
• Government must also remove the No Recourse to Public Funds (NPRF) restrictions. Everyone living in the UK must have access to public funds.

Sick pay for all

The government response to the consultation on ‘Health is everybody’s business’ stated that “now is not the right time to introduce changes to the sick pay system.”23  The TUC believes that the time is long overdue to ensure that everyone can afford to take time off work when they are sick, ensuring a health recovery for themselves, their workplace and the wider economy. Government should:

• Remove the ‘lower earnings limit’ that prevents around two million people from qualifying for sick pay. The estimated cost of this is around £150m a year, if government chose to subsidise the costs.
• Increase statutory sick pay to the level of the real living wage, around £330 a week. The estimated cost of this to employers is around £110 per employee a year for those employers who don’t currently pay occupational sick pay. 24
• Introduce day one sick pay for all workers. With the return of waiting days for coronavirus, workers will now receive just £38 for their first week of isolation.

A funding boost for childcare

Childcare costs add significantly to the cost of living for working families. The pandemic has had a devastating impact on the childcare sector for childcare workers, parents and children. In the six months up to March 2021 there were 14,385 fewer childcare places and 3,292 fewer providers in England.25  Research has also shown that the pandemic has exacerbated recruitment and retention problems in the sector and many childcare  workers have been pushed below the poverty line, made worse by a lack of access to sick pay during Covid-19.26

Working parents have seen their access to formal and informal childcare impacted by the pandemic, this is particularly true for working mothers. Our 2021 research found that a fifth of working mothers who responded to a survey were going to have to take unpaid leave to manage their childcare over the summer holidays.27  Children and families from disadvantaged backgrounds were most likely to be unable to access formal childcare during the pandemic.28 Before the pandemic, according to data from Coram Family and Childcare, for disabled children in England, only 25 per cent of local authorities reported having sufficient childcare in 2020.29

Lack of access to affordable childcare was an issue before the pandemic, and again has been exacerbated by it. Long term we know the disproportionate burden of care on women, and the lack of affordable childcare provision and access to flexible working have negative impacts on women’s career progression and are key drivers of the gender pay and pension gaps at 15.4 per cent and 37.8 per cent respectively.

We must recognise childcare as vital infrastructure for any levelling up agenda, and the enabler of employment that it is. We need a new deal for childcare workers and parents and their children alike. Government should invest in good quality, affordable childcare to help the sector and families recover from the pandemic and build a sustainable future for the childcare sector.

Immediately government should:

• Give an urgent cash boost for the sector – like the financial help given to transport networks – to give childcare workers better wages, and a long- term settlement to make sure childcare is affordable and available for families
• Raise the minimum wage to 10 per hour immediately. Our analysis shows that over 170,000 childcare workers would benefit, particularly women and young workers.30

Improving pensions

Pensioners also face significant pressures from rising prices, adding to the impetus for reforms to deliver more secure pensions to all workers.

Improving the state pension

The decision to suspend the triple lock for 2022/23 and increase state pensions in line with the September Consumer Prices Index means the state pension will not keep up with price rises this year. At 3.1 percent, CPI inflation in the 12 months to September was less than half Bank of England’s central projection for April 2022 of 7¼ per cent.

The TUC has argued that the low level of the UK state pension31  and the low ratio of government spending on state pensions to GDP32 relative to other OECD countries, meant the triple lock should have been maintained. At the very least government should recognise the unusually rapid increase in inflation from September to April, and use the latter figure for uprating. Failing to do so will reduce real incomes this year by

£388 for someone on the full new state pension and £297 for someone on the full basic state pension. This cut will hit the lowest income pensioners the hardest, with those in the lowest income quintile relying on benefits for over 80% of income.33

The government must also use the current Independent Review of the State Pension Age to urgently rethink plans to increase the state pension age to 68 by 2039. The latest life expectancy projections show this is completely incompatible with the government’s policy aim over the last decade of maintaining the proportion of adult life people spend in receipt of the state pension at one third.34

The TUC also believes that planned increases should be shelved to prevent existing inequalities of class and ethnicity from widening in old age. TUC analysis has found that workers in low paid and manually intensive jobs and BME workers are already significantly more likely to be forced out of the labour market before state pension age by ill health, or because of caring responsibilities.35

Workplace pensions

The TUC supports cross party calls to expand auto-enrolment to bring more low-paid, part-time and young workers into the occupational pension system.36 In particular the government should implement the recommendation from the 2017 Review of automatic enrolment to phase out the lower earnings limit as soon as possible. The government has pledged to do this, but TUC analysis found that delaying implementation by 6 years could reduce the pension pot of a low paid worker by £12,000.37 Removing the lower earnings limit should be followed by the phasing out of the earnings threshold and setting out plans to increase statutory minimum contribution rates to ensure all workers have automatic access to a decent workplace pension.

These measures to expand auto-enrolment would particularly benefit women, who are more likely to be in part-time or low-paid work, and help reduce the gender pensions gap, which stands at 37.9 percent.38

---

The response we need from government: Creating an economy based on decent work

Government needs to take longer term steps to change the way our economy works and the incentives that shape it so that economic growth translates into good quality jobs. This requires an institutional environment that encourages the development of business models based on high-wage, high-skilled and secure jobs, rather than a reliance on low-paid and insecure work.

We need a new skills strategy that gives people rights to training and development throughout their working lives. It also requires reforms to our corporate governance system so that companies are encouraged to focus on long-term, sustainable growth that distributes a fair share to workers, rather than prioritising short-term returns to shareholders. We need to develop a new, green industrial policy with effective measures for creating and supporting good quality jobs in sectors that will equip the UK for the transition to net-zero and trade policies that will raise employment standards in the UK and around the world. And we need sustainable public services that support decent jobs and communities across the UK.

A skills strategy for all workers

The TUC is calling for a new national lifelong learning and skills strategy based on a vision of a high-skill economy, where workers can quickly gain both transferable and specialist skills to build their job prospects. Some key measures could be rolled out swiftly now, with longer-term reforms put in place to tackle entrenched failings in our skills system that limit employment prospects and personal development. A strategic approach along these lines could be delivered at pace by a National

Skills Taskforce that would bring together employers, unions and other key stakeholders along with government.

There are four key areas of reform that should be at the heart of a lifelong learning and skills strategy to address these challenges:

• A significant boost to investment in learning and skills by both the state and employers is essential.
• People should have access to fully-funded learning and skills entitlements and new workplace training rights throughout their lives, expanding opportunities for upskilling and retraining.
• Expand access to high quality apprenticeships for all young people wishing to take up this option.
• We need a national social partnership, bringing together employers, trade unions and government, to provide clear strategic direction on skills - as is the case in most other countries.
• Our college workforce must be empowered and properly rewarded for their work; an immediate priority must be to tackle the long-term decline in pay in the sector.

Government should also restore funding for the successful Union Learning Fund.

Corporate governance reform to promote long-term, sustainable growth

• Company law should require that elected worker directors comprise one third of the board at all companies with 250 or more staff.

An industrial strategy for good, green jobs

The UK’s industrial and manufacturing base has experienced a hollowing-out since the 1980s. Between 1960 and 2015, UK manufacturing employment declined more sharply than any other advanced economy except Switzerland.39

UK industries risk falling further behind if the pace of industrial retooling for Net Zero does not match that of international competitors. The need to update business models and technologies to support a decarbonised economy will create fierce international competition for investment, for example, in the automotive components manufacturing industry.40 Ensuring adequate and timely support for industrial decarbonisation and retooling will secure the future of up to 600,000 jobs in manufacturing and supply chains, according to TUC research.41

Industrial strategy has an important role to play in levelling up, but supporting good quality employment must be a core part of the strategy. We need an ambitious programme that rebuilds the UK’s industrial capacity, tackles regional inequalities, and positions UK industries to be ready for, and benefit from, the transition to Net Zero.

Strengthen supply chain commitments for infrastructure and energy projects

To boost domestic manufacturing, services and technology development, and reap the full benefit of developments in infrastructure and renewable energy, the government should adopt strong trade and procurement policies to strengthen local supply chains and employment standards.

While mindful of restrictions on the use of local content requirements in WTO and EU trade treaties, the UK government should use such policies where they are legal and needed.

• To bid for infrastructure contracts or energy subsidies auctions, companies should be required to demonstrate commitments to strong labour and human rights standards across their supply chain, and to lay out how they will strengthen local supply chains and what level of local content they expect to achieve. Companies should be held accountable for these commitments.
• The UK Government’s Offshore Wind Sector Deal’s ambition for 60% lifetime UK content is clearly insufficient. An estimated 35% of windfarm expenditure is in operations, maintenance and service 42
   (most likely to be local regardless of targets). The local content target for offshore wind should be brought up to at least 80%.
• The UK should make use of geographical exceptions to state aid rules (e.g. successor to the EU Assisted Areas Map), and where appropriate, apply for sectoral treaty exceptions based on public interest, to strengthen local supply chain rules.
• The UK should also use future international trade negotiations to expand governments’ ability to use conditions on investment to strengthen domestic supply chains.

Future-proofing industrial workplaces

Greater public investment is needed to decarbonise and retool UK industry and supply chains, protect local jobs and economies and maintain international competitiveness. This is especially important for high carbon sectors already affected by UK and international carbon regulations and increased international competition, for example, steel production. Without sufficient support, high-carbon employers may choose to relocate production to jurisdictions with a lower cost of carbon (a process known as carbon leakage), or conversely to countries that offer more support for developing and scaling-up zero-emissions technologies. Either process would risk losses to skilled jobs and productivity in the UK.

• The government should invest at scale in future-proofing industrial workplaces.
• Fund regional economic diversification, to meet climate targets and support levelling up

The relative success of past regional transition programmes in Europe demonstrate that a long-term commitment to public investment is key – for example, the 25-year regional funding for economic diversification in the coal centre of Limburg in the Netherlands.43

The EU committed €17.5 billion towards its Just Transition Fund, financed through the EU budget and Recovery Instruments and to be further match-funded through the European Regional Development Fund (ERDF) and European Social Fund (ESF).44 This will be invested in small and medium enterprises (SMEs), land restoration, emission reduction and research & innovation, targeted at any regions at risk of being left behind through the decline of high-carbon industries45

• Where local economies depend on high carbon local employment that cannot be retooled, the UK should provide funding equivalent to the EU’s ‘Just Transition Fund’ to support communities to diversify and develop alternative industries.

Decent public services

Public services were weakened by a decade of needless austerity. Government must now put in place a plan to ensure that we have the strong resilient services we need to face the future. In addition to the measures on public sector pay set out above, this must include:

• Creating 600,000 new jobs in public services, including 355,000 jobs in health and social care, 80,000 jobs in education and 50,000 jobs in the civil service.
• Investing in an NHS for today and tomorrow, working with unions on a fully- funded, long-term workforce strategy.
• A sustainable funding settlement for social care based on equalising the rates of capital gains tax with income tax, generating an additional £17 billion per annum.
• A significant boost to the funding of justice to address backlogs and excessive workloads.
• Introducing a comprehensive programme of investment in education to reverse the damage to pupil’s learning as a result of the pandemic.
• The government should demonstrate a firm commitment to the protection of public service pension schemes in line with the 25-year commitment following revisions to public sector pensions from 2015.

---

Conclusion: building back better

The promises to ‘build back better’ after the pandemic must not be forgotten. Beyond the immediate challenges of rising prices and falling real pay, government needs a strategy to deliver a better economy for working people.

Any such approach must recognise that the economy has for too long served the interests of the wealthy ahead of labour. As a result there is vastly excessive money in the hands of the few, and too little in the hands of the many. Looking at the inflation debate in this broader context, former US Secretary of Labour Robert Reich warned last year:

“Here’s the thing. The wealthy spend only a small percentage of their income – not enough to keep the economy churning. Lower-income people, on the other hand, spend almost everything they have – which is becoming very little. Most workers aren’t earning nearly enough to buy what the economy is capable of producing”. 46

In this way, low wages put production out of reach of workers. Moreover, excess wealth is constantly seeking new outlets for capital gain, fostering excesses in property, production in cutting edge technologies, and in ripe-for-exploiting overseas economies. Today, think high end residential property, the FAANG – Facebook, Amazon, Apple, Netflix and Google (now Alphabet) – companies, and the notions (courtesy of Baron O’Neill, then of Goldman Sachs) of BRIC – Brazil, Russia, India and China – and MINT – Malaysia, Indonesia, Nigeria and Turkey – economies.47

The ongoing and unresolved private debt crisis across the world follows as unsold production leads firms to rely on borrowing, and deficient incomes mean too many households rely on credit and loans to get by. Policy since the global financial crisis has exacerbated these imbalances, with austerity meaning workers’ incomes were restrained, while quantitative easing advantaged the wealthy as asset values soared.

High levels of debt create additional risks to monetary policy. Actions that might protect against price inflation are much riskier, with high levels of debt meaning greatly higher interest payments and a threat to financial confidence more generally. So while central banks have tried repeatedly to tighten policy, they have retreated when financial markets reacted badly.48 The pandemic struck in the aftermath of the latest retreat with growth across much of the world grinding to a near halt in 2019; the systemic risk council remarked:

  "Covid-19 strikes the world at a time when too many corporations around the world are over-indebted, and after a period during which persistently favourable market conditions caused traders to take aggressive positions, exposing them and the system to spikes in volatility, let alone a collapse in asset values”.49

Even ahead of the conflict in Ukraine financial markets were nervous about the tightening of monetary policy that is happening across the world. This policy dilemma may fall to the Bank of England, but should be understood a symptomatic of the unsustainability of the system as a whole. 50  Policymakers have not found a way forward to resolve the global financial crisis, and instead keep falling back on old broken ways. The head of the IMF Kristalina Georgieva has called out a Bretton Woods moment,51 “to fight the crisis today – and build a better tomorrow”. Trade unions contend any such approach must reset the balance to labour from wealth.

The system that sacrifices the needs of the many to the interests of the few needs to be brought to an end.52 As trade unions have always understood, doing so is counterproductive both in terms of fairness and in terms of a better economy. The present inflation should not be one of a number of repeated excuses to avoid discussion of building back better.