The High Wage Fantasy

Beyond a few exceptions, the government's much-touted transition to a 'high wage economy' has yet to materialise – and without stronger trade union powers, it never will.

British workers have experienced the longest wage stagnation since the Napoleonic Wars. Credit: Getty Images

The government says it wants a ‘high wage’ economy, but is being deeply complacent about delivering one. The Tories have presided over the longest pay squeeze for two hundred years, and the Chancellor has now admitted that next year will be more of the same, with no real pay growth across the economy.

If we want a high wage economy, the government needs a plan. While high levels of vacancies should shift power towards workers, this won’t deliver higher pay on its own. Trade unionists know that, and it’s time the government took notice.

Where we are seeing examples of big pay wins, it is through workers organising in their workplaces. Without a plan to boost pay across the economy, we won’t see the pay rise workers deserve—and that plan must include giving trade unions more power to drive up pay and conditions.

Jobs Remain at Risk

The labour market has been making up lost ground, but this recovery remains fragile. The number of employees recently moved 120,000 above the pre-pandemic level. However, these figures cover the period before the closure of the furlough scheme. It is likely that many will come off furlough into unemployment.

And for industries hit hardest by the pandemic, recovery remains some way off. There are still 320,000 fewer employees across arts, hospitality, manufacturing, and retail. These are the industries that had most people furloughed as the scheme came to an end. There are also still 600,000 fewer self-employed people than before the pandemic.

We should be worried about jobs. The Office for Budget Responsibility predicts that unemployment will get worse before it gets better, creating a tough winter for many.

A Pay Rise Is Well Overdue

Workers are well overdue a pay rise. In the latest figures real wages are only £2.50 a week or half a percent higher than their peak before the financial crisis—which was 13 years ago. Over recent months real pay has crept down towards its pre-financial crisis level. A simple forward projection suggests it may fall back under the pre-crisis level. This is partly because of pressure from rising prices, as bills go up and supply chain issues bite.

The government’s own forecasts admit that real pay next year is due to fall by 0.1%. Inflation of 4% for the year will wipe out average earnings growth of 3.9%. Over the coming four years, from 2022-2025, average annual real pay growth is predicted to be just 0.3%. And the Institute for Fiscal Studies has pointed out that real wages are forecast to be lower in 2026 than in 2008.

Are Labour Shortages Driving Up Pay?

Labour shortages are a persistent theme of recent discussions about the economy, indicated by a record 1.1 million vacancies. It seems that workers are choosing not to return to sectors where pay and conditions are poor.

The number of people making themselves available for work has been slowing down, but this should not be seen as a long-term trend. It is normal for labour market inactivity to go up in a recession. People perceive a shortage of jobs and may therefore stop looking for work—but recovery can pull them back in again.

The obvious way for businesses to entice people back would be to increase pay and improve conditions. Unions report that such arrangements are the exception rather than the rule. Our analysis at the Trades Union Congress backs this up. Sectors with the most vacancies are not delivering any better pay growth.

There are some specific examples of large pay rises, but these are often isolated cases. Pay rises are not materialising on their own. Unions report that significant pay increases are only won where workers are strongly organised or as the result of disputes. In September, for example, GMB negotiated an 11% pay rise for Wincanton HGV drivers in London. In October, Unite won a similarly high pay rise of 13.6% for Wincanton drivers in Wales, and a £10 minimum wage for cleaners at Sheffield University. However, pay rises remain a mixed bag.

Many companies are using recruitment bonuses rather than permanent pay rises for all workers. There’s a similar story in other sectors facing shortages, such as food manufacturing. Workers need the security of sustainable annual real pay rises—not one-off enticements.

In some areas, pay rises are failing to materialise at all. Care workers and bus drivers are seeing little in the way of pay rises, for example, despite facing severe worker shortages.

A Plan to Raise Wages

To deliver a high wage economy, the government needs to do more than simply watch on and hope. Trade unions need stronger powers and better access to workplaces to drive up wages and conditions. Fair pay deals need to be implemented in whole industries, negotiated with unions, and designed to get pay and productivity rising in every sector. This will address the long-term problems that lead industries with poor pay and conditions to experience labour shortages.

And rather than a return to the failed austerity of the last decade, we need a new economic model. Higher pay is not dangerous—it is necessary to boost demand and deliver sustainable economic growth.