News & Analysis

Workers Expected to Pay for Worst Economic Crisis since 2008

25 October 2021
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By Tim Nailsea

BRITAIN’S ECONOMIC growth has almost stalled because of shortages of labour in parts of industry and of material inputs, due to disruptions in the supply chain, coupled with the effects of Brexit.

GDP grew by 0.4% in August but is still 0.8% below where it was in February 2020, before the country went into lockdown. Higher government spending during the pandemic, alongside an increase in consumer saving, higher commodity prices and a weakening pound, mean inflation is likely to hit 5% this winter and 6-7 % by the middle of 2022.

This is the context for Chancellor Rishi Sunak’s autumn budget. Premier Boris Johnson’s promise of a ‘high-wage, high-skill, high-productivity economy’ remains a populist pipedream. More likely is ‘stagflation’, that is, low growth and rising prices, last seen in the 1970s.

The Bank of England may raise interest rates in response, starting with 0.15% in December and potentially rising to 1% by the end of next year – the highest in a decade. This may boost financial markets and incomes for those who have savings, but it would seriously impact those in debt or paying mortgages.

It would also raise the cost of public borrowing. With government debt standing at £2.2 trillion – 106% of GDP and two and a half times its level at the time of the last financial crash – that will have an impact on future spending.

The pandemic, Brexit and cuts to college training programmes have combined to bring about labour shortages in key industries, such as manufacturing and construction. Hospitality and care have a high turnover of low paid staff working in poor conditions; staff are leaving faster than they can be replaced.

Sunak’s promised £3 billion investment in a ‘skills revolution’ is too little, too late to solve these problems. Britain has long had low productivity, but the past decade of Tory rule has seen it decline further compared with other major economies, with its rate of productivity growth half the G7 average.

The Chancellor’s claim that more money for public services will draw in investment from abroad and raise productivity is also unlikely to produce results. The spending projections cover three years, giving ample time for them to be withdrawn, and there is no direct connection between government spending and greater productivity.

So Tory economic policy will not mean a higher standard of living for the vast majority of us. Inflation will erode any public sector pay awards or increases in the minimum wage. Extra funding for schools and the decimated colleges will not compensate for a decade of austerity. The UK will remain at the bottom of the global productivity scale.

Labour’s Response

The response from the Labour Party to this crisis – as could be predicted – has been so weak as to be barely noticeable. Keir Starmer and David Evans are more focused on purging the party of any remnants of Corbynism than on leading a fight against the Tories.

At a time when energy prices are rising and the nationalisation of utilities has never seemed more reasonable, Starmer has distanced himself from that policy. At the Tory Conference, Johnson aimed to paint the Conservatives as a party of higher wages, while Labour’ Shadow Secretary for Employment Rights and Protections, Andy McDonald, quit because he was told to argue against a £15 an hour minimum wage and statutory sick pay.

Labour’s main economic policy announcement has been a promise to freeze business rates. Labour is desperate to reassure business that British capitalism will be safe in their hands.

Workers’ Response

There is, however, some hope. HGV drivers in several companies have begun to strike, or threaten strikes for better pay and conditions. There are signs of strike action among bus and train workers, as well as important strikes in manufacturing, such as at Weetabix and Clarks. Local government and the NHS unions are starting to ballot over pay.

The combination of labour shortages, skilled and unskilled, and rising prices is not only fuelling growing demands for wage increases but also growing determination to fight for them. The problem now is that union leaders’ horizons remain pitifully low.

Unions that are negotiating deals based on the current inflation rate plus 1 per cent are condemning their members to a real wage cut next year. Instead, claims should be much higher to catch up with the losses of the two years of Covid, not to speak of the long period of stagnant or falling real wages since the Great Recession of 2008.

Given rising inflation, unions should demand an “escalator clause” in all agreements, guaranteeing wages rise in line with the real costs of living, including rents and mortgages. The TUC with aid of unions, especially those with large numbers of women, should calculate its own working class cost of living index.

As for the labour shortages, certainly we should be fighting for training and apprenticeships for young workers and the unemployed. But we should also be fighting for the right of workers from abroad to take up the unfilled jobs where the Brexit ending of ‘free movement’ has caused acute problems.

Of course unions should demand that these workers are paid the exact same rate as British workers. They should campaign to recruit them into the unions to protect them from exploitation by unscrupulous employers.

As the restrictions of the covid crisis abate, all unions need to be taking up the fight for the ‘high wage economy’ Johnson demagogically and cynically touted at the Tory party conference. But they will only win if the rank and file exert maximum pressure on our leaders and takescontrol of the struggles by electing strike committees not only to organise effective picketing but to control negotiations and any proposed deals.

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