British Prime Minister Boris Johnson was at his oratorical best as he triumphantly brought the annual Conservative Party Conference to a conclusion at Manchester Central Hall on 6 October 2021, liberally sprinkling his upbeat 45-minute speech with alliterations, neologisms, street speak, catchy slogans, and other tools of populist expression. He promised a “high wage, high skill, high productivity” economy, in place of the “old broken model with low wages, low growth, low skills and low productivity, all of it enabled and assisted by uncontrolled immigration”. The speech, although well received by his adulatory and largely self-selected audience, failed to impress the nation’s sceptical business leaders, trade union officials, and economists, including those on the right wing of the political spectrum, with even the Adam Smith Institute, a champion of free-market economics, claiming that that it was “vacuous and economically illiterate”
Given the lack of detail in Mr Johnson’s speech, we cannot be sure how these high wages will be set and then delivered, but it does give us an opportunity to take a look at wage-setting structures as they currently operate in the UK’s labour market. According to the Office of National Statistics (ONS), the number of payroll employees in the country rose to 29.1 million in August 2021, marking a return to pre-pandemic (February 2020) levels. As of June 2021, the public sector employed an estimated 5.68 million of these employees.
The public sector provides a range of public services, including those in state-provided education, emergency services (police, fire, ambulance), healthcare, social care, housing, public administration, and waste management. Public sector wages are set nationally, guided by collective bargaining with trade unions and by the recommendations of independent pay review bodies, whose advice the government can choose to either accept or reject. It can be difficult to measure productivity in the public sector, leaving pay awards to be largely influenced by political agendas and economic considerations as well as to be aligned to government fiscal policies of wage restraint, in the form of caps and freezes to reduce the budget deficit and thereby balance the government’s accounts. The recent 3 per cent pay award to NHS workers, backdated to April 2021, has to be set against a 3.2 per cent rise in inflation (measured by the consumer price index) in the twelve months up to August 2021. The award has failed to satisfy both the nurses, whose trade union (Royal College of Nursing) has demanded a 12.5 per cent pay rise, as well as the union representing support staff (Unite), with both bodies calling for industrial action in protest.
The private sector comprises utility providers, manufacturing industries, and a range of service industries (agricultural, business, construction, hospitality, tourism, and financial sectors). This sector mostly uses a market-driven approach to set wages, determined by management in response to production costs and demand for goods and services, often involving a non-unionised workforce. The government has little direct influence upon private sector pay, except through defining a national minimum wage. But wage-spillover effects may mean that pay in the private sector is influenced by public sector pay awards, to prevent workers in private enterprises from signing up as state employees. Public sector employees also have better job security and access to amenities and pension schemes.
Wages are more likely to be linked to productivity in the private sector, especially in small- to medium-sized businesses. In larger corporations, the picture is clouded by the demands of shareholder capitalism, in which maximisation of shareholder returns is accompanied by including logic-defying “performance-related” rewards for top executives, contributing to growing wage inequality in the corporate world. The drive for profit-maximisation has also led to the outsourcing of British manufacturing to low-cost manufacturers overseas, the decimation of the nation’s industrial workforce and skill base, and the steady decline of British industrial output. At the same time, British employers and consumers have increasingly become reliant on so-called “low-skilled” migrant workers, especially in the agricultural, food processing, hospitality, and social care sectors, to keep costs down and ensure profitability, especially in areas where the profit margins are low.
The return of high wages to a post-pandemic Britain, repeating the wage-price inflationary spiral of 70s Britain, seems most unlikely as matters stand. Overwhelming structural changes are needed for the desired transition to a high- wage economy . A new focus on creative innovation in terms of services provided and goods manufactured is essential. A combination of public sector wage restraint in response to the pandemic, stagnant wages in sections of the private sector, a not over-generous national minimum living wage (£9.42 per hour for those aged 23 and over), and falling real wages, in the face of rising food, fuel, and housing costs, will meanwhile ensure that the vision of high wages, desirable though it may be, may turn out to be nothing more than a worthy aspiration rather than a deliverable promise.
Ashis Banerjee