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Why Gordon Brown wants to hold down wages

This article is over 14 years, 0 months old
New Labour’s claim that a three-year wage freeze will help to keep inflation in check is a myth, explain Yuri Prasad and Anindya Bhattacharyya
Issue 2084
Graph shows the projected decline in spending power
Graph shows the projected decline in spending power

Gordon Brown has ratcheted up his attacks on workers’ pay by demanding three-year below inflation pay deals in the public sector.

These deals – which Brown insists must be held below 2 percent even though inflation is more than double that – would lock millions into effective pay cuts for the next three years.

It is a further assault on the hundreds of thousands of working people in Britain who are already wondering how their wage can be made to stretch until their next payday.

According to a poll for the Norwich Union insurance firm, almost three quarters of monthly paid workers ran out of money last week and are now paying for food and other everyday necessities with a mixture of loans, credit cards and overdrafts.

But this situation does not seem to concern the New Labour government.

Brown says he is attempting to hold pay below inflation until 2012 – just as many economists are predicting inflation rates could rise to between 6 and 8 percent in the coming years.

Inflation has been on an upward trajectory for more than a year, with the cost of transport, housing, food and fuel rising fast. Food prices are rising at an average of about 5 percent and some suppliers have just announced household gas and electricity bills will rise by 27 percent this year.

That is why so many workers are finding themselves worse off compared to a year ago.


Brown said he had taken the “difficult decision” to prolong the pay limits because the government wants to “break the back of inflation” and “maintain stability” in the economy. He said that unless we all carry on tightening our belts, pay rises will be eaten up by higher prices and increased mortgage and rent payments.

But wage rises are not what is driving inflation. Higher pay for nurses, teachers or street cleaners does not lead to higher prices. These are determined by much bigger forces in the world economy – such as the rising cost of corn, wheat, gas and oil.

Companies that increase their prices as a means of maintaining, or increasing, their profit margins are also driving inflation.

Brown hopes that public sector pay restraint will start to affect rates in the private sector too.

By holding down pay, British companies and their bosses can continue to line their shareholders’ pockets with profits and dividends, while the government can hold down public spending.

In turn that means that the government can keep down or cut taxes for big business and the rich. It means it can continue to subsidise bosses to keep them competitive with other ­countries’ firms.

All the talk of a “tough year” does not seem to have filtered through to Britain’s wealthy.

Boardroom pay at Britain’s top companies soared by 37 percent last year as directors were rewarded with inflation-busting increases in basic salaries, big cash bonuses and substantial payouts from share schemes.

The surge in pay, which takes the average total pay for a chief executive to £2,875,000, is more than 11 times the increase in average earnings and nearly 20 times the rate of inflation.

In 2006-7, for every £1 a worker earned, bosses took home £98 – up from £93 the previous year.

The picture for top executives in the public sector is not very different. A recent report into boardroom pay in the NHS shows that, among the trusts surveyed, the median average annual pay of chief executives was £123,300 – up some 7.8 percent on the previous year’s report.

Bosses are not the only ones exempt from the demands of tightening belts.

Anyone who works in public services knows the enormous waste involved in outsourcing work to “private contractors” – the swathes of consultants who litter our hospitals and civil service buildings, and the failed multi-million pound computer schemes that were supposed to make the public sector more efficient.

Brown has not called for any form of restraint from the profiteers of privatisation.

For all his tough talk, Brown’s attempt to impose an incomes policy through wage restraint is a sign of the government’s weakness – and an extremely risky strategy.

Previous attempts to control incomes have resulted in major confrontations with the unions, and have even led to the collapse of governments, such as Edward Heath’s Tory administration in 1974, which was brought down by a miners’ strike (see »Incomes policy: a dangerous strategy).

In that period governments talked of limiting prices as well as wages, and even suggested that their policy would benefit the lowest paid.

Today there is no sugar to sweeten the pill. One effect of imposing a wage freeze on such a large number of workers is to make the idea of workers in a variety of services striking together extremely attractive.

People rightly feel that all those who are under attack should hit back together, and that their union leaders should be co-ordinating the response.

This feeling is widespread within the public sector but extends well beyond it.

Over the last year millions of workers in the private sector have been able to secure pay deals that approach the government’s estimate of inflation.

Skill shortages and the fact that many engineering, pharmaceutical, chemical and transport companies have been making big profits have allowed unionised, and even non-unionised, workers to make some gains.

But it is possible that these same firms will use the prospect of a recession driven by a “credit crunch” to follow the lead of public sector employers.


Therefore a challenge over pay in 2008 has the possibility of uniting workers in all sectors and in all unions.

But for that to happen workers have to break the impasse created by the many union leaders who believe that workers’ interests must come second to the needs of the Labour government.

There is a heavy responsibility on the leaders of unions like Unison, which has over a million members in the public sector. Unison leader Dave Prentis responded to Brown’s plans to extend the pay limit, saying, “This is the most unjust pay policy I’ve ever seen.”

However, the experience of last year – when the union refused to lead a fight over pay in local government and the health service – shows that it will take heavy pressure from the rank and file of the union to make the leaders fight.

And, as the dispute in Royal Mail shows, there must be an organised rank and file in the union to carry forward that fight when the union leaders waver or seek a shoddy compromise.

Gordon Brown has shown that he has no intention of using his power to improve the lives of ordinary people. He wants to make workers pay for the crisis of capitalism.

The best way to force the union leaders to fight is to back any group of workers that stand up for decent pay. A breach of the government’s policy in one area could lead to its collapse.

‘Wage rise wiped out’

‘In the Department for Work and Pensions (DWP) we are already fighting a three-year pay deal that was imposed on us last year by Gordon Brown.

Most people at the DWP got a pay increase of around 2 percent this year. I’m quite low down the pay scale for my grade, so I got a larger increase that just about kept pace with inflation.

But even then it only worked out at £30 a month. I calculated that my entire pay rise has been wiped out by the increase in the cost of petrol alone.

Other people in my office tell me that their pay rise was wiped out by the rise in rail fares this January – the cost of train tickets has gone up by around 11 percent.

And it gets worse when you think about all the other rises in day to day prices – mortgage payments going up, for instance, or council tax bills.

My message to other public sector workers is whatever you do, do not accept a three-year pay deal!

The economy’s future is looking rough and you are going to get stuffed.

You cannot trust this government to renegotiate the terms of the deal if inflation increases. They will break whatever promises they make now. So don’t take the deal – come out on strike alongside us and let’s break this pay limit policy together.’

Kate Douglas, statistics processor in Oxford Department for Works and Pensions

‘My debts get bigger’

‘I am in my third year of teaching and I still don’t earn enough to repay my student debts. I have to rely on my partner’s income to help pay bills – if I was on my own I wouldn’t be able to get a mortgage and it would be very hard to make ends meet.

Gordon Brown says if inflation rockets during his proposed three-year deals he’ll look at it again. It’s a lie – he hasn’t done that with teachers.

Our pay was meant to have gone up when inflation rose above 3.25 percent. There was a trigger in our last pay deal that meant our pay award would be looked at again if inflation rose beyond this level – the government reneged on this promise.

On the radio last week Brown said the advantage of three-year deals is that it allows workers to budget better.

What an insult! The problem’s not that we don’t know how to use the money we’ve got, but that we haven’t got enough in the first place.

The mood at work is mixed – people are genuinely disgruntled with the government but not necessarily confident enough to go out and strike.

There is a debate going on. The campaign by the NUT union has helped. Teachers haven’t struck on a national scale for a generation or so.

Everyone knows our pay can’t cover current price rises – in petrol, gas and basic foods, for example. Newer teachers lower down the payscale are hit particularly badly.

If we unite with other unions we can create a groundswell of anger. We need that kind of campaign, arguing the case for a united fight now over pay.’

Doug Morgan, primary school teacher in Birmingham

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