Slowing the rate of decline

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There is a scene in ‘the Scottish play’ where a somewhat drunken porter explains the effects of drink to Macduff and Lennox. One of the things which he says is impacted by drink is lechery. As he puts it: “Lechery, sir, it provokes, and unprovokes; it provokes the desire, but it takes away the performance”. Leaving aside any question about the extent to which this may be literally familiar to some politicians, the political parallel which actually brought this to mind is the impact of an increasing cost of living on wage rises. It provokes the desire for wage rises, but takes away the value of any that are actually achieved.

Yesterday, the PM stood up at PM’s Questions and claimed that the government was “…delivering… the fastest wage growth in years”. In absolute terms, it’s probably true, or at least as close to being true as any words that emerge from the mouths of ministers these days. But given the efforts which the government has been making to control pay rises, it’s a strange thing to claim as a ‘success’. And whilst it may be true in absolute terms, in relative terms wages are still lagging behind prices. He could, with an equal level of veracity, have announced that the government is “…delivering the fastest decline in real wages in years”. Some might argue that that would also be a ‘success’ for a government hell-bent on reducing the standard of living of the many as a way of opening the door to tax cuts for the few.

It isn’t the only ‘creative’ presentation of economic statistics. Other ministers have been saying things like ‘a fall in inflation is the best type of tax cut’, and ‘when inflation is halved and people see prices starting to fall, they will feel better off’. It’s possible that their level of mathematical understanding is so low that they believe this stuff, and that they really don’t understand what inflation is. Occam’s Razor tells us that the simplest explanation (‘they’re just stupid’) is probably more likely than the more complex one (‘they know that they’re talking rubbish, but think they can fool us’). Those of us who live in the real world understand that, whilst falling inflation is, on the whole, a good thing (even if zero inflation is not necessarily so good) a world in which wage growth lags behind price increases simply means that we become poorer more slowly, not that we become better off.

Ultimately, that is the very best economic proposition on offer from the current government – 'we’ll slow down the rate at which you get poorer'. Trying to spin abject failure as success is all they have left – the desperate last throw of the dice.

Not traditional Tories at all

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There seems to be an ongoing battle in Sunak’s cabinet between those who think that feeding the population is on the whole a good idea and those who are so ideologically opposed to immigration that they think that it is better to let food rot in the fields than to allow businesses to recruit people to collect it. As has become the norm in the Tory Party, it seems that the ideologues are winning. Since Sunak has the power to override or sack the Home Secretary any time he wishes, it is reasonable to conclude that he is on the side of the ideologues, for the time being at least.

Braverman’s core argument seems to be that we should train up UK workers as HGV drivers, fruit pickers, and butchers rather than rely on attracting people from elsewhere to fill those jobs, and that’s the way to build a “high-skilled, high wage economy that is less dependent on low-skilled foreign labour”. The logic involved in that – that training people to do jobs which she obviously regards as low-skilled helps to increase skills and wages – escapes me, but let’s leave that to one side.

One of the issues raised by her apporoach is this: to what extent should people be free to choose their occupations rather than being ‘encouraged’ or even compelled to do those jobs which are available? Clearly, it cannot be a completely open choice – if 50 million of the UK’s citizens chose to become cobblers, we’d have an excess of shoes and a shortage of just about everything else. But neither do most of us want to see the type of command economy which marks people out as they leave school, allocating them to occupations according to need. In the real world, as a matter of fact, it tends to be the case that the children of the most well-off in society have rather more choice about how to earn their living than do those from poorer homes. There is another ideological component underlying that: for the political right (accepting the limitations and reservations about using such simplistic terms as left and right), the masses (but not themselves or their families, obviously) are there to serve the needs of the economy, whilst for the political left, the economy is there to enable people to achieve fulfilment as individuals. (As an aside, it’s a distinction which obviously places the modern Labour Party as one of a number of competing brands on the political right.)

In practice, things are not quite as black and white as that and, in the economy as currently constituted, we need a mechanism of some sort to decide how to fill those jobs which need filling, whilst avoiding a glut of cobblers. For the Conservative Party and Labour Party alike, the traditional answer is that ‘the markets’ should solve the problem. Shortages in one occupation should lead to increased wages, whilst surpluses in another should see pay falling behind. Looking at the actions of the current government, that begs the question: are they really traditional Tories at all? Deliberately holding wages below the rate of inflation (and thus making those receiving them poorer) in occupations where there is a clear and growing shortage is the reverse of what free market ideology suggests should happen. Their approach increasingly seems to be one of compulsion and direction in which the population does as it is told to serve those who wield economic power; but that only underlines the extent to which they have moved away from a belief in market forces towards authoritarianism. Braverman is just the most egregious example.

Protecting Tory voters isn't levelling up

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For the PM to talk about moving to a high wage economy on the same day that his government reverses the temporary uplift to Universal Credit would look like just another example of incompetence and inconsistency if the clash of dates hadn’t been known for months in advance. It looks instead more like an example of just rubbing people’s noses in it. 

It’s true, of course, that the uplift was always billed as temporary but the rationale for moving from an inadequate weekly payment to a marginally less inadequate weekly payment for the duration of the pandemic was never spelled out explicitly. It clearly has little to do with any suggestion that the pandemic was somehow going to cost those receiving the benefit more, but always seemed to be associated more with the fact that more people were going to end up claiming the benefit, as a result of a furlough scheme which cut the wages of millions of employees. It’s no coincidence that the ending of the uplift comes at roughly the same time as the ending of furlough; it’s all about electoral politics.

It’s a sweeping generalisation to say that, in so-called ‘normal’ times, most of those in receipt of Universal Credit in England (and it's only England that matters to the government) will be either Labour voters or else non-voters, more concerned with managing their daily lives than with voting in an election where most votes count for little. (And who can honestly blame people struggling to make ends meet on a daily basis for being less than passionately concerned about which particular bunch of deficit fetishists are in charge of implementing an austerity programme?) But being a sweeping generalisation doesn’t necessarily make it incorrect. What the furlough scheme did was tip many more of the voting public – including a number who do, or could be persuaded to, vote Conservative – into the area where they needed to claim the benefit. The uplift was intended not so much to protect the interests of claimants as to protect the electoral interests of the Conservative Party. Now that very many fewer of their voters fall into the system, they believe that they can afford to revert to the even more inadequate level of benefit which pertained previously. People who don’t vote for them simply don’t matter to them.

The PM claims that it is better for people to be in high-wage employment than to depend on benefits. He’s right – but if his government were serious about that, they could legislate tomorrow to outlaw any employer paying a full time wage so low that staff need to claim benefits in addition. Such a proposal might give them a little difficulty with some of their own backbenchers, who seem to believe that not paying people enough to live on is a perfectly reasonable employment practice (and also effectively provides a handy public subsidy to companies who donate, or might be persuaded to donate, large sums to the Tory Party), but I’m sure that they’d get enough support from opposition parties to get the measure passed. Outside the ranks of the Tory Party, I doubt that there are many MPs who believe that paying people less than enough to live on is ever a reasonable thing to do.

There is nothing in the PM’s rhetoric about a high-skill high-wage economy which is going to help those at the economic bottom of society, doing jobs where there is little or no possibility of innovation or improved productivity. Even if it were possible for all those doing jobs on low pay to walk into higher-paid employment tomorrow, the requirement for most of those jobs would still be there; we’d just be faced with an unfulfilled – and unfulfillable – requirement. Levelling up (even if it were defined, which it has not been to date) is a not unreasonable aspiration, but the word ‘levelling’ is more important than the word ‘up’. Unless action is taken to reduce the disparity between the top and the bottom, it’s not levelling at all, and there will still be people left behind at the bottom. Ensuring that his party can win elections without ever needing the votes of any left in that group is a much more limited aspiration – but probably a better description of the overall policy aim.

Setting the 'right' level

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I’ve talked a couple of times recently about pensions in the context of the GERW study, and the way in which the total apparent revenue and expenditure in Wales in such an approach is impacted by demographic flows.  But the issue raises another question as well because whilst the level of pension is consistent across the UK, the level of wages is not.

The new state pension is currently set at £155.65 per week (although not everyone will get that, of course).  The average wage in Wales is £473.40 per week and that in the UK as a whole is £528 per week (source).  So in Wales, the pension represents around 33% of average earnings, but in the UK as a whole it represents around 29% of average earnings.  This makes it look superficially more generous in Wales than in the UK as a whole.  (And much of what I say in this post could also be said about other benefits.)  But in the context of GERW, this is another factor which inflates the size of the fiscal gap in Wales compared to the UK as a whole.

Is this an argument for ‘regional’ levels of pension?  No doubt some would see it as such, but for me it raises two other, rather different issues.  The first is this: ‘at what proportion of average salary should the state pension be set?’.  It would be nice to believe that that question had been answered – or even asked – in setting the current level of the pension, but it doesn’t seem to have been.  It’s been more a question of starting where we are and determining the basis on which any rise in pensions has been calculated, usually with political advantage more to the forefront of the mind than any rational consideration about the ‘right’ level of pensions. 

It is, however, an issue that an independent Wales would need to consider, even if many nationalists would prefer not to think about it at present.  I’d like to believe that an independent Wales would be aiming to ensure that the average income of retirees was higher than the 33% level rather than lower; but the underlying point here is that there’s nothing particularly special about the position in England.  An independent Wales would not be bound by what has happened or will happen across the border.  And whilst making international comparisons is never straightforward because of differences in other factors, most EU member states pay pensions at a higher rate compared to average earnings than the UK.

But it’s the second issue which concerns me more, and that is that the apparently more generous level of pensions in Wales is actually more to do with the low level of wages than the high level of pensions.  Because the highest-paid jobs are elsewhere, partly because of the centralised nature of the UK, Wales ends up as a (comparatively) low-wage economy compared to the UK as a whole.  But there’s nothing necessary or inevitable about that; it’s a direct result of our status and role within the UK.  It follows that changing that status is key to changing the nature of our economy.  And changing the nature of the economy is the key to setting the level of pensions.