Wage rises must be earned or risk stoking inflation
IT’S looking like a generous gung-ho Budget with the living wage going up and an end to the public sector wage freeze. But this surge in personal income has to be paid for by someone and the fear must be that inflation and taxes are going to go up, eroding a lot of the gains in our pockets.
Chancellor Rishi Sunak’s lifting of the national living wage from £8.91 to £9.50 an hour is equivalent to a 6.6 per cent pay increase and will give low wage earners an extra £1,000 a year.
Younger workers aged 21 and 22 will get an even bigger lift of 9.8 per cent while teenagers get improved minimum wages too.
It all plays very well in to Prime Minister Boris Johnson’s ambition for higher wages across the UK and is intended to compensate for a worrying rise in the cost of living.
But isn’t this just going to add to the inflationary tidal wave coming our way?
“We won’t be able to absorb all these additional cost pressures that we’re facing and this will just be an additional one of them,” says Kate Nicholls, chief executive of UK Hospitality, the trade body representing pubs, restaurants and hotels.
“We are more than happy to pay to make sure our teams get a fair wage and a good reward but the bubble of inflationary pressure is so big that it will undoubtedly result in higher prices.”
ALREADY, hospitality venues have had to raise wages in order to compete for the dwindling reserve of skilled staff and then there is this winter’s increased cost of heating and power, food and transport, plus business taxes and rent.
It is a perfect storm of coinciding price rises that will mean going out for a meal or staying in a hotel will cost us all considerably more than it used to.
By raising the minimum wage, Mr Sunak is simply throwing petrol on the flames of inflation.
The same is true of the Chancellor’s pledge to end the public sector pay freeze with wage rises across the board next year.
And yet with inflation predicted to rise to 5 per cent in 2022, he has little choice but to match the loss of purchasing power so that nurses, teachers and service staff are not left out of pocket.
It is a vicious spiral that will have a knock-on effect on the private workforce with demands for higher wages across all sectors.
Back in the 1970s, trade unions competed with each other to deliver higher incomes for their workers with devastating strikes. Trade union membership is far lower now but higher public sector wages will inevitably spark discontent with private firms losing employers to the state unless they match the wages hike.
To be honest, it seems an odd time to be embarking on a budget of considerable largesse with taxpayers’ money when the economy has bounced back remarkably well from Covid lockdowns. Politically, such gains in poll ratings will be lost by the time of the next election, especially if inflation erodes the good feelings of the spending spree.
THE frightening concern is that Mr Johnson and Mr Sunak are taking a gamble that a temporary rise in inflation will help diminish the colossal £400billion government debt racked up during the pandemic, but that will be at the expense of our hard-earned savings accounts and a crippling cost of living crisis.
In addition, the Bank of England will be compelled to raise interest rates, making mortgage repayments more expensive.
Once unleashed, inflation is notoriously difficult to control and might need a decade of tighter monetary control to subdue it.
Boris is no Margaret Thatcher it appears but more a Harold Macmillan, who once declared, “our people have never had it so good”. Amid a rise in living standards, Macmillan won a resounding victory two years later in 1959, but the scourge of inflation dogged Britain over the next two decades, rising to a peak of over 25 per cent in the early 1970s.
A far better way to encourage growth is to cut taxes.
Cutting VAT on sky-high energy bills and cancelling a fuel duty hike would do more to reduce the impact of price rises, helping consumers weather a stormy winter.
Boris’s Tiggerish positivity might strike the right note with voters but they will start to see through his jokes once their money is worth far less than it used to be. It is good to be ambitious for British workers with better rewards but that has to be earned with increased productivity not merely an illusion of wealth created by throwing public money around.
‘Vicious spiral will have a knock-on effect on the private workforce’