The Conservatives always like to refer to the nightmare scenario (under Labour), where the UK becomes like Greece. However, under their economic leadership the UK has now plummeted down the OECD rankings, to compete with Greece – for the bottom position of real wage growth.
A series of studies performed by the Institute for Fiscal Studies (IFS), Organisation for Economic Co-Operation and Development (OECD), and the Resolution Foundation, have exposed a decade of wage decline in the UK.
A summary from these studies revealed an average real-term drop in wages equivalent of £2,136 per worker. Expressed as a percentage, wages have fallen 10.4% when adjusted for inflation, a collapse in real wages only rivalled by Greece, according to the OECD.
The 2008 global financial crisis hit all developed nations, however the majority have seen the expected strong wage growth during their economic recovery. European rivals to the UK, such as France and Germany, have seen their real wages rise over 10% during the same period.
Despite weak wage growth, the UK has managed to reach record levels of employment. This, under normal economic circumstances would be great news for the UK economy. However due to the failure of Conservative economic policy to rectify our poor productivity output, and rebalance our economy away from the financiers of London, more than half of people in poverty, are also people in work. We have reached a situation in the UK where work is no longer a route out of poverty, people have become trapped in an endless cycle of unaffordable bills and crippling private debt.
Conservative commentators like to frame their failings with positive spin. It is often claimed that the drop in real wages has protected millions of jobs in the UK, particularly within the public sector, where the 1% pay cap has been enforced. It was only last month Theresa May told nurses that they’re lucky to have a job in these uncertain times.
A wider economic analysis of these claims shows that German levels of employment reached record highs last year at 75.3%, and Japanese unemployment has reached a 22-year low of 2.8%. Both countries have experienced strong real wage growth, debunking the Conservative’s argument entirely.
For a more balanced picture across the OECD examine the TUC analysis below:
Discussing real wage growth in the UK the IFS has made three key points:
- Falling unemployment in a recovery should generate real wage gains.
This has not occurred in the UK, in fact a steep decline in real wages has been experienced. Furthermore, the study by the IFS and a similar study by the TUC have directly linked the fall in wages to the drop-in unionisation of the workforce. Workers have become stuck in flexible low-hour positions without the protection of Unions. Often workers are powerless to negotiate their own pay increases, the low-wage economy keeps families just a single pay-packet away from poverty, and workers find themselves easily replaceable.
- Productivity growth will generate real wage gains, but so far productivity has remained very sluggish. There has been no ‘springboard’ effect in productivity, as usually seen after a recession.
Conservative economic policy has kept productivity down. Instead of austerity and mass privatisation of state assets, the UK has been crying out for a sensible but fair spending plan. Most importantly, the UK requires a massive infrastructure investment plan to generate high quality jobs, and to kick-start the real economy. The failure to rebalance the economy away from the bankers, and away from London, has led to the continued decline in British manufacturing. Productivity has dropped so much in the UK, that Germany could take Friday off and still produce more than us. The remedy for poor productivity has never been so clear, however the solution goes against core Conservative values.
- Productivity growth is necessary, but not sufficient. If productivity gains are not being shared out, there is no reason why workers will gain.
This is an important point that could directly relate back to the decline in Union presence. Many multinational companies are making record profits in the UK; however, they are reluctant to share out the dividends of their success to hard-pressed workers.
Conservative policy has been aggressively anti-Union, which should come as no surprise when you consider who funds their election campaigns. The Guardian has reported that changes to the law regarding Unions has been the biggest Union crackdown in 30 years. Recent efforts have; criminalised unlawful picketing, made it harder to strike legally, and have sought to cut off Union funding to the Labour party.
Workers in the UK now face two new threats to their wages and monthly income. These threats have been branded so severe by the IFS, that the think-tank has warned workers will receive no pay rise for 15 years. The IFS budget analysis claims working people’s wages will be ‘no higher in 2022 than in 2007 with weak pay growth exacerbated by looming welfare cuts’.
The first serious threat comes in the form of higher Brexit-linked inflation. Since the referendum rising prices in consumer products have already hit working families during the weekly shop. Whilst the referendum didn’t produce the doomsday scenario some Remain proponents warned of, the sharp fall in the pound has made importing products more expensive. Inflation is set to remain around 2.6%-3.5% for the near future, far outstripping the meagre 1% pay increases many workers face.
The second threat comes as a direct result of Conservative austerity economics. To drive down the welfare bill, and weaken the safety net that protects us all, Theresa May will take the axe to in-work benefits. Important changes to benefits are; the cash freeze, which means benefits will not increase with rising inflation, cuts to child tax credit, and the roll out of Universal Credit which is less generous than the previous system. The IFS have studied and summarised the effect of the Conservative plans:
In summary; the Conservative’s time in office has been an abysmal economic failure. The failure to rebalance the economy, and invest for growth in the UK, has been at the expense of the working people. Sluggish productivity growth and the longest freefall in real-wages on record have hit families hard. With no vision for the future of the UK, this government will do nothing as rising inflation puts more working people into poverty, and changes to tax credits take thousands away from the poorest working families.
To overcome these challenges, the UK needs a strong trading relationship to continue with the European Union, working families cannot shoulder the cost of a ‘Hard-Brexit’, as WTO rules would place significant costs on the consumer for imported goods. With the European Union in a strong recovery phase, future trade should also benefit the UK economy. A ‘transitionary’ phase has been suggested by the Government this week, it would be wise to seek a permanent EEA agreement to keep the UK within the single market but to also allow us to strike up 3rd party trade deals.
A concrete infrastructure investment plan is needed to create high quality jobs, and to draw in private investment to the UK. A approach such as Labour’s regional investment banks would help rebalance the economy across the UK, and provide strong growth in the manufacturing industry.
Finally, the UK needs a government committed to providing people with the skills and knowledge they need to compete in the global economy. A skilled workforce will help the UK economy become more productive and attractive for investment in the long-term.