Will Labour's nerve hold on public sector pay?
Even Labour’s traditional allies are circling, looking to take advantage of the wounded animal staggering along below. Today it’s the turn of the country’s biggest public sector union to have a go. Unison has refused to accept the 2.45% pay deal offered to public sector workers and is to ballot 900,000 people on whether to strike.
Not only does this utterly confuse the maxim ‘keep your friends close but your enemies closer’ (just where do you keep friends who also have turned out to be enemies?) but it raises a couple of interesting questions. The first is whether Gordon Brown will stick to his guns. In almost every interview he’s done in the last day or two he’s put great stay by how good the government has been at keeping public sector pay down. If he backs down under union pressure he’s unlikely get away with it in the same way the government did in 2005 when it caved into union pressure about civil servants’ pensions.
Secondly, is this all one hilarious joke by the union? One of the great drivers of inflation is increased wages (as this gives folk more money to spend). So for unions (for surely more will follow) to say increasing wages suddenly for up to 1 in 5 of the population will make things better is at best hopeful and at worst, downright naïve. Of course there is the argument that it’s food and fuel that’s driving inflation and pay levels have nowt to do with it (as trotted out here by Polly Toynbee). If that is really true then let’s all hike up our salaries and live the Life of Reilly now the link between pay and inflation has finally been broken. About time too.
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kinglear
May 16th, 2008 4:57pmThe problem is the rest of us have to pay for it.
Marcus Cotswell
May 16th, 2008 4:58pmWell, I hate to say it, but the link between pay and prices is actually a rather weak one. Think about it - over the last ten years, wages have been going up across the economy and especially in the public sector. But we haven't had to have sky high interest rates to keep the lid on inflation. Commodity prices are a much stronger driver of inflation.
The issue is public sector borrowing which can undoubtedly stoke up the inflationary flames. To the extent that public sector pay accounts for that, then it is partly responsible. But only partly.
The fact that public borrowing is out of control at the same time as a surge in commodity prices is a real source of concern - hence George Osborne's stuff about "not mending the roof while the sun was shining".
Kevyn Bodman
May 16th, 2008 4:58pmAre increased wages really one of the great drivers of inflation (as this gives folk more money to spend)?
I own some shares in one of Britain's major supermarkets.If the wage bill goes up and my dividend goes down then the wage-earners have more to spend and I've got less.So what (c Ed Balls )?
If the money supply is not increased then can the general level of prices rise? Some will, some won't.
However, I must admit that I only did half an A level Economics course. Even though that was in 1974, when A levels are thought to have been better than now, it still leaves a lot I didn't learn.
Mark
May 16th, 2008 5:24pmBrown is in deep trouble over this. He has been saying that he understands that prices are rising so how do you justify a pay increase of only 2.45%? But if he sticks to his guns, he alienates his core vote and if he gives them more, he has to find the money from somewhere.
PD Oxford
May 16th, 2008 6:17pmAnd don't forget the police case! - This is hotting up as well.
John H Miller
May 16th, 2008 7:51pmSadly, we live in the real world, whereas Toynbee can commute first class to Tuscany without having a carbon footprint - a sort of virgin reirth , as it may be.
molesworth 1
May 16th, 2008 8:08pmOnly the transmutation of base metals into gold & perpetual motion to go then, eh...?
Alf Tupper
May 17th, 2008 7:05amI'll do you a deal Mr Millar: you can have a rise in salary this year, of 20% of my wages, if I can have a rise in salary equal to 1% of yours.