From the TUC

Mark Carney at Congress 2014: When will Britain get a pay rise?

09 Sep 2014, by in Economics

When the Governor of the Bank of England addressed the TUC earlier today he told unions that they were right to ask ‘when will Britain get a pay rise’?

He started by setting out his analysis of the significant changes our jobs market has experienced in recent years. While more people are in work than ever before, more of those jobs are low skilled and low paid with higher rates of underemployment and self-employment further evidence of ongoing labour market slack. He recognised the increased polarisation of work, with a sharp reduction in the employment share of middle-skilled jobs, and also that financial risks are being ‘steadily shifted to employees from both employers and the state’.

The Governor confirmed just how substantial the UK’s real wage squeeze has been, setting out that when inflation is taken into account earnings have fallen on average by 10% since the start of the financial crisis, a fall of such significance that there hasn’t been such a drop since the 1920s. 

What’s more, he further noted in the Q&A session after his speech that in parts of the economy, including the public sector, the impact has been even worse. The TUC’s analysis has already shown that we are still enduring the longest living standards squeeze in modern economic history. Now the Bank of England has shown us that it’s also one of the deepest.

It was welcome to hear that the Governor recognised the impacts that falling pay has had on the daily lives of working households across the country, with his speech setting out that almost a tenth of households in a recent Bank of England survey said they were working more because of concerns about repaying their debt. He recognised that in the face of such tough times British workers had not given up, but also that by taking lower-skilled jobs, working part-time, becoming self-employed and having to work for less pay than they had previously received, they had been severely challenged.

While the Governor recognised that productivity growth remains a concern, he was clear that recent poor performance has not been a result of workers reducing their effort. With weak pay growth and reduced availability of credit, investment is down but low paid work is up. Hardly a strong economic model for the future, and one which will need to change to secure a sustainable recovery.

It was of course welcome to hear that the Bank expects real wages will finally start rising next year, but it cannot be underestimated just quite how much later this is than many previous government forecasts have suggested. In 2010, the OBR thought that real pay would be going up within 12 months. For the Bank of England to set out that it will be mid-2015 before we pass this point is remarkable. What’s more, the Governor was clear that we can expect interest rates to start to rise by at least next Spring – some time before real wages have even begun to pick up.

Recognising the scale of real wage falls, and the importance of securing investment and productivity improvements in the months ahead, the Governor made the case for an economy characterised by fairer pay. But his speech noted that it was not monetary policy but the actions of ‘trade unions, government and businesses’ which will determine the scale of the UK’s long awaited future pay rise. The TUC will continue to campaign for the policy changes we need to make sure that it’s substantial.

One Response to Mark Carney at Congress 2014: When will Britain get a pay rise?

  1. Unions call for a pay rise | politicsbitesize
    Sep 12th 2014, 2:09 pm

    […] Governor of the Bank of England acknowledged her call for a better wage when he addressed the conference on Tuesday. Mark Carney […]