UK pay falls at fastest rate on record as inflation hits
bbc.co.uk
bbc.co.uk
It seems to me that decades of industrial policy have been aimed at clamping down any means to demand nominal wage increases, especially through industrial action, so we are now stuck in a low-wage staff shortage situation; this would be a great time to invest capital in productivity increases, especially while interest rates are below inflation, but British management culture is too dysfunctional for even that. And the government are not going to do anything useful because they're busy competing for the top job, egged on by a press who don't care about industrial policy or wages.
The problem is now that the cost of housing has more than doubled over the past ten years and now we have an inflation problem too. They can't double the pay and, even if they could, this would just be adding fuel to the fire.
How this will play out, I don't know, but maybe we don't need multiple versions of the same kind of business and only those who can get the staff will survive and prosper?
You don't know the half of it. I got stuck in this trap when I was a teenager:
https://www.theguardian.com/business/2017/aug/30/poundland-w...
It was outrageous.
Employers are complaining because they are competing against a benefits system that theoretically acts as unemployment insurance and encourages people to find work, but in reality is currently just giving out free money. It's a sort of real time experiment in UBI for the lower paid classes. The result is predictable: many firms cannot compete against the state paying people not to work.
Lockdowns have had all sorts of weird side effects like this. COVID became a sort of wildcard justification for anything at all, and government departments used it to do whatever they secretly wanted to do anyway (give out free money without the "being mean" parts, working from home even as backlogs at their departments soar, etc).
> working from home even as backlogs at their departments soar
There's no evidence that this affected efficiency?
https://www.telegraph.co.uk/news/2022/06/02/benefits-britain...
Firstly, he tackles the bogus claim that it's to do with Brexit:
"Immigration has bounced back. There is no Brexit-sized hole in our workforce; not anymore. Immigrants now account for one in five workers in Britain, the highest ratio ever."
Then he tackles the definitions used for unemployment stats:
"The low unemployment claim is a mirage. Britain has, in fact, been suffering a period of mass joblessness as big as any in our recent history. The proportion of people who are neither in work or looking for it is higher now than it was in the mid-1970s. More than five million people were claiming out-of-work benefits at the last count – a figure as big as the population of Scotland. But many of them don’t count as unemployed, because they’re not looking for jobs. So – presto! – they vanish from the national debate."
Parts of the UK have become massively dependent on benefits:
"In Blackpool, official figures show 26 per cent on out-of-work benefits. In Middlesbrough it was 23 per cent, in Hartlepool 22 per cent, in Manchester, it’s 18 per cent."
Why doesn't the Universal Credit system fix that? It's as I said:
"Why? How did we get here? How did Universal Credit, the flagship reform of the Cameron era, start to produce the problems that it was designed to solve? It was created with strings of conditionality on welfare payments, with sanctions imposed if people turned down jobs or missed face-to-face meetings. During lockdown, the conditions were abandoned – and never properly restored. So the new system has started to trap people in welfare as surely as the old one did. It has started to become an issue in Cabinet."
> More than five million people were claiming out-of-work benefits at the last count
The government thinks that's 1.5m.
https://www.ons.gov.uk/employmentandlabourmarket/peoplenotin...
edit: look, the problem with basing solutions on a nonsense assessment of the problem is it doesn't work. We've been round this with disability benefit; it was made much harder to claim by simply rejecting a very large number of valid claims upfront. A bogus appeal process through ASOS was put in place to further deplete people's ability to claim. However, once the claims got in front of a real court or external appeal, the majority were upheld.
There isn't a hidden army of the idle.
> Immigration has bounced back. There is no Brexit-sized hole in our workforce; not anymore. Immigrants now account for one in five workers in Britain, the highest ratio ever.
There are 33 million employed people in the UK. One in five is 6.6 million.
There are 6 million foreigners in the UK: https://www.ons.gov.uk/peoplepopulationandcommunity/populati...
We must deduct that Mr. Fraser Nelson is describing an economy where newborns work, probably aiding 600’000 foreign zombies. Or one is still an immigrant after 10 years and even after naturalisation?
> The proportion of people who are neither in work or looking for it is higher now than it was in the mid-1970s.
Employment rate is at 76%, as high as Germany and higher than in the mid-70s. https://tradingeconomics.com/united-kingdom/employment-rate
I don’t have time to research the benefit data but it’s not necessary because Mr. Fraser Nelson has totalled the bullshit meter. Maybe these work lazy Britons should get a job as Telegraph editorialists? They don’t publish articles anymore, so I’m sure they need some help and the bar doesn’t seem too high.
The bulk of the growth in claimant count came from Feb 17 to Mar 20 - it nearly doubled over that period, when conditionality of benefits was in full swing. It simply does not follow that conditionality reduces claimant count.
In any case, conditionality was reinstated in July 20, and unless you or Fraser can precisely define how conditionality was "not properly restored", I'm going to take the government's word on it.
Per his tweet, https://twitter.com/FraserNelson/status/1530206631195201536/..., we can see in his computation of those on out-of-work benefits he includes pension credit (what demographic receives this, I wonder?), and 1.7M people on INCAP - the various disability allowances, the majority of whose claimants will, due to the closure of the old schemes to new claimants, be on the modern ESA benefit where eligiblity is assessed by an independent healthcare professional. For example, as my mother withered away in her final months, bedbound with oesophogal cancer, she became eligible for ESA, and contrary to one of your other comments to another poster about the 5 million, she most assuredly was dying.
Note also that UC is in turn becoming a replacement for ESA. He did not avail himself of the facility on Stat-Xplore to breakdown those aggregated UC figures into the "out-of-work" and "no work requirement" figures - they are 2,103,346 "out of work" and 1,399,843 "no work requirement" - no work requirement being defined in https://www.gov.uk/government/publications/dwp-statistical-s... as "those who are not expected to work at present, such as those for whom Health or caring responsibility prevents claimant from working or preparing for work"
Thus, the 5 million figure is inflated by a mere 3.1 million people who are either retired or who have been assessed as having some inability to work.
I would suggest critically examining the source stats instead of uncritically accepting the interpretation of right-wing journalists with an agenda, though I fear you share said agenda...
> "The result is predictable: many firms cannot compete against the state paying people not to work."
Maybe many firms could stop abusing employees to extract money for record profits and instead compete on being decent places to work where people want to work because they feel like they are adding value to the world rather than being exploited and trapped.
Management Consulting is the fourth most profitable industry in the entire UK, how are so many companies so badly managed??
https://www.ibisworld.com/united-kingdom/industry-trends/mos...
If renting a half-decent flat cost £1500 per month, I don’t see how we can expect people to work for less than £2500 per month.
We have working people in the UK in the situation where they would be delighted to have to choose between "heat" and "eat".
Because now they are forgoing both. FFS, children are stealing toilet rolls from their schools because their families can't afford to buy them.
Well, except for politicians. They got to say they "fixed" the "problem" of people mooching off the system. Except what this actually does is create a bureaucracy that people have to specialize in, so only very dedicated moochers will know how to use the system at all. People who use the system for its intended purpose will not know what to do in order to navigate all the government bureaucracy around it.
Lots of employers were used to buying into a labor market in which their workers had zero negotiating leverage besides minimum wage. This is deliberate. If the labor market had consolidated or changed in such a way as to naturally make prices rise through market mechanisms, then those employers would be calling on the government to manipulate the market the other way. In fact, that already happened: the whole concept of trade liberalization was weaponized to do exactly this to union labor.
Speaking of, we also need to account for the fact that China has shrugged. The torrent of cheap-as-free overseas labor is now not nearly as free and comes with significant problems; i.e. being tied to the CCP's political priorities and frequent lockdowns as a result of China's COVID-zero strategies. So even if we weren't running a UBI experiment, we'd still see shortages and wage inflation, because the country we built the entire global economy around is no longer providing what it used to.
You end up in a situation where if supply is constrained but demand is strong enough and companies can, in the short run, raise prices but not have to employ more people which mitigates downside risk of adding additional cost structure and commitment of new employees. Not a great long run strategy though these are strange times.
This is also a failure of the Fed to raise interest rates when times weren't bad. Interest rates should have been at 2% before inflation started taking off, but people were addicted the cheap, almost free money but they didn't want to give it up.
This works because having interest rates at the rate of inflation will cause more people and businesses to slow down their spending as they feel like they aren't losing money by not spending it.
I believe the Keynesian approach to fix high inflation is to just raise tax rates to get money out of the economy.
I believe this doesn't work as well because the extra tax dollars are then spent by the government, which are them competing for goods and services, though probably in different areas, but it's still keeping that money in the economy which will keep prices high. The only way I could see this working is if the extra tax money was used to pay down debt, which I doubt anyone in the US government would do.
Build some infrastructure with these taxes. In this case, also massive investments towards improving productivity. That’ll put the money to good use and at least prime the pump for recovery, and private businesses do not seem willing or capable of doing that.
But you also have the problem of those dollars then going towards labor and materials, which will keep demand there high, continuing inflationary pressure in those areas.
Unfortunately it seems to be a pipe dream in most countries I know.
> But you also have the problem of those dollars then going towards labor and materials, which will keep demand there high, continuing inflationary pressure in those areas.
Yes, and I am not sure there really is a solution to that. I guess hiking interest rates would cause a shift from debt to the new income stream, but it would be complex as ideally you’d still want lower rates to stimulate investment. Probably an increase in corporation and capital taxes as well, but then I might as well wish for a unicorn.
I'm usually a Keynesian, but in this case, i think we should jack up interest rates and deliberately tank housing and asset prices, then use large scale infra investments to stop the unemployment rate rising too high.
Easier said than done, i suppose.
I am mostly with you, but “deliberately crashing housing and asset prices” is political suicide and I don’t see it happening. Interest rates are a good start, though.
Also, I think that considering the current labour shortages the risk of unemployment getting out of control is limited.
I do fear the fed isn’t doing what it needs to because they’re afraid of being seen as political, one way or the other. I hope we don’t have to wait until after the midterms for them to grow a pair.
I agree and I wish this mindset would disappear. Of course a central bank is political. It’s job is to keep a working economy. There are few other institutions that affect directly so many people every day, it’s the definition of politics. They might not like the optics, but each of their decision is just as political as one from any government agency.
There is some sense in insulating them to some degree from short-termist elected politicians looking for a windfall, but their smug “I know better” attitude (and the lack of accountability) is deplorable.
Sorry, that was a bit of a rant, but we should remember that a central bank is there to serve a country, not the opposite.
The Fed tends to be restrained because the monetary policy levers they have been given are deliberately a blunt instrument with extreme overshoot dangers, especially when all the indicators aren't pointing the same way, and managing the economy requires the much more targetable tool of fiscal policy controlled by Congress as well as monetary policy.
(That said, the Fed is pushing, by historical standards, really hard on its levers, raising rates at a pace not seen since 1980.)
If they raise the interest rates anywhere close to the rate of inflation a lot of the 3rd world will have a Sri Lanka style crisis.
Seeing employees as nothing more than a cost center is not new.
Unions were busted, pensions ransacked, through decades of leveraged buyouts, intentionally torpedoing worker savings.
This was no accident; in the US, just like Brexit, it was intentional on the part of business and legislators. Consolidated power over agency is their goal.
I view it as a good thing. Even in the US, I see stores/restaurants closing earlier, closed on Sundays, and job advertisements on the side of buildings advertising pay rates. That means the people at the bottom are finally gaining negotiating power.
If you are in a competitive market and you were able to raise pay, your competitors will probably be able to raise pay too, and so they will also raise pay to fill their shortages. Someone will raise pay to be higher than yours and then you are the one gaining a shortage to provide a worker to fill someone else's shortage.
Net short term result: you and your competitors still have shortages, but are now all paying more, and are possibly in a feedback loop that will continue to raise pay without fixing your staffing problems. You may have to raise prices, and then not only did raising pay fail to solve your staffing problems it increased inflation.
Whether or not that is also the medium or long term result depends on how easy it is and how long it takes for the new higher pay in your industry to bring in new workers to your field instead of just shuffling existing workers between companies.
Even if it does bring new workers to your field if those come from other fields it might be shifting the shortages to those other fields, which might then go through their own cycles of raising pay that only accomplishes shuffling shortages between them.
No. It's exactly the same condition, but people are telling the story from different points of view.
Workers aren't getting paid any more, and with inflation, it's effectively a lot less.
Companies who scoop up cash via inflation just can't find workers who want to work for what the companies are willing to pay.
This is the result of neoliberal policies leading to a return of robber barons.
The cost of potatoes goes up for me as well. So am I being hit twice by the potato price hike — once for me and then again for my landlord?
In a fair world, renting a property is paying for the right to live somewhere and nothing more, but I feel like in the unfair world landlords feel entitled to rent as an income stream and as such when the potato price goes up they will ask for a “pay raise” (rent rise) to cover it.
I find it a lot healthier to not worry about the money after I spend it, it's no longer mine for I have agreed to trade it away.
Buying a sandwich from a sandwich shop who's landlord will likely donate to politicians that want to make your life suck is the smaller stakes but closer to home version of nations buying oil that funds people who hate them.
Property is a whole other ball game. In every market economy you see tremendous capture of government by landlords. They rig the game by constraining supply. The free choice worldview breaks down given that shelter is a necessity, and the only place I can get it from is this cartel that has 2x-ed the price of the good via their capture of government. That delta in price is theft facilitated by government force, masquerading as a free transaction between consenting parties.
Libertarians are supposed to be against regulatory capture and crony capitalism, and the property market is like a textbook example of this kind of depraved capture of government by special interests.
That doesn't invalidate your point, but I think it requires a more subtle argument than if you had given a different example like maybe transport.
I think the main point is that government constraints on supply is theft, whenever those constraints are applied onto an entire market with no good substitute. Not theft as understood in a current legal sense, but functionally equivalent.
The interest group (landlords, steelmakers) are stealing from customers (renters, builders) by lobbying government for supply constraints (zoning laws, steel tarrifs). The mechanism of theft is artificially higher prices paid by the consumer, with no way out given an absence of substitutes.
Whether the good is a necessity or not is somewhat moot to the question of whether theft is occurring. Even if I buy unnecessary gym equipment, I am still being robbed if the price is 2x higher due to government corruption. It is more pernicious when the good is a necessity, like shelter, though, because the theft becomes mandatory.
Sure. The moment smug Tory landlords stop nagging me about the price of avocado toast.
I suspect I just hate renting / landlords, and it’s nothing more complex than that.
There is no level playing field in the UK.
Inflation is measured by the changing price of several things. Yes, rent is one of them.
Like many others during such inflationary periods, he might simply end up with less purchasing power.
People will pay more than they can afford for rent, and landlords know this all too well.
Add on top of that current house owners stopping new properties going up and now you have people in the position to be completely fleeced with no way out.
Rental properties as income streams needs to stop. A place to live should be just that, not a way for the landed gentry to fuck the serfs even harder.
Some markets need outside forces to help protect consumers.
Contractor and Perm salaries in the tech sector to me are a good representative of the situation overall. Wages in these areas have stayed roughly the same because there's an illusion that they are already paid too much (5-10%+ over 3 years). Inflation + the race down make the UK job hunt seem less and less appealing to the extent I know a few people who've packed up and gone across the pond to Europe. The skills shortage is only going to get worse with an already stretched and dwindling pool of people and there is no sign of let off to undermine wages yet, and this is just in London.
The situation of pay falling despite a shortage of workers is bizarre but we can't forget the efforts to undermine and keep wages low.
Back in the good days you could earn 800 pounds day rates, which is a very good salary by UK standards. Then the parasitic HMRC decided it wanted a much larger slice of that pie.
Infosys has been doing rather well since the legislation hit the private sector though.
However, the surplus funds belong to the business, not the individual, and reside in the business bank account. Should the contractor choose to leave this "profit" in the business, it is taxed according to UK Corporation tax rules. Should the contractor draw this profit down via PAYE or dividends or Directors loans or whatever, it triggers tax events, which will result in tax due on the contractors Self Assessment.
A quick run of the numbers from your post on contractorcalculator.co.uk suggests the contractor pays substantially more tax on the income than the waiter, assuming the contractor is running their business within HMRC's rules.
edit: forgot to mention corporation tax liability in addition to SA liability.
IR35 doesn’t prevent real businesses from operating as usual. It prevents masked employees (people that attend standup, have a company email, have an account on Teams, effectively report to a manager, etc…) from avoiding taxes and claiming iPhones and PlayStations as expenses.
If thats enough to buy you the lifestyle of an office worker in Berlin or Rome, I don’t know. The real issue is cost of property and childcare, especially if you have a child, because you can’t live in a cramped 60sqm apartment nor you can spend 4 hours a day commuting. You can easily end up spending 6K a month just to put a roof over your head and send you child to nursery. 6K per month is ~120K gross.
Living in a 80-90sqm flat without carpet or broken stuff, in an area where you have bars and cafes and restaurants and a decent school, plus sending a child to nursery, doesn’t seem unattainable in Germany (at least my German friends say so). In London that’s luxury.
You'd think they are at a wage floor already but it seems that it can go lower.
?? could you provide some details about this? i thought water is a non issue because we have incredible amounts of it that just needs energy to desalinate, energy which will come very cheap in a couple of decades.
That's a very load-bearing "just". Germany is busy shooting itself in the head by turning off their nuclear reactors.
Not currently if you look at the boats crossing the channel.
(This is obviously a crime, so special legislation will be enacted to let the state murder undesirables)
And the people smugglers make about £5k per person for the migrants.
You get screwed royally in Europe, but only screwed half way in Switzerland and the UK. You'll still earn half your US counterparts, and pay more in taxes for the privilege.
In general EU salaries seem very low compared to US ones. (saying EU in general, not that the UK is EU anymore).
Its important then to compare to your contemporaries, and to understand quality of life instead of absolute numbers. It's apples to oranges.
I don't really see how my standard of living would go up going from owning my own home to living in a tiny apartment. Different strokes for different folks of course but for me it would be a big drop in standard of living.
Public transport being half decent means you don't have to actively drive everywhere freeing up time for yourself, even if you have a long commute.
I don't think there's many owning their own houses in NYC or DTLA, it's weird to compare like this.
Running the numbers I couldn't afford it. Property is very expensive in the UK. We have a few of her relatives come visit and they kept telling me how big my house is, they kept bringing it up and I thought it was British sarcasm and they were being assholes because my house is less than 1200 sq feet on a third of acre. They were being genuine. My house is one of the smallest in my town, I don't think you can even legally build them this small anymore.
> I don't think there's many owning their own houses in NYC or DTLA, it's weird to compare like this.
I don't live there for the same reason, I can make more money but it will all go to paying rent for a tiny apartment.
Not to say that UK properties aren't smaller on average as not only are we obviously a much smaller country but we also have a greater proportion living in higher population density areas, as less people here are happy to live outside towns/cities than in the US.
I think you're living in a different England to me.
"half"-decent is an appropriate term.
I'll be moving soon, it's starting to get a little hairy around here. There have been a few incidents in the past few years involving drug addicts. One crashed into a utility pole on my property, another crashed into mine and several cars parked on the street and was arrested screaming on my neighbors lawn. The convenience store across the street has overdoses happening on a regular basis that EMS responds to. We often get accosted by people for money when we walk over there. Point being it's nothing like Stranger Things my kid can't ride a bike around town here.
That said I can move about an hour or two into the middle of Pennsylvania close to the area I grew up in and it's like what you picture. It's also about half the price in terms of home values and that's not factoring in the larger minimum lot sizes. This is a great starter home for a young family, but once my daughter is older I want her to live in a place were she won't have to deal with this crap.
Meanwhile, neither RPI or CPI try to track increases in the cost of living.
They don't? What are they tracking then?
You can argue that it is or isn't doing a good enough job in terms of the choices made but that's specifically what it's doing (and while it may not be doing it well enough, it obviously does need to be done based on sampling not based on producing an exact % for each individual that the things they bought over the past year have increased).
(You're not the person who wrote "neither RPI or CPI try to track increases in the cost of living", but that's the context of this comment chain.)
RPI/CPI aren’t only tracking the prices paid, but also the quality of goods exchanged. For example, TVs used to be bulky boxes, with a small, low res, black and white screen. These days they are flat and high res with a large colour screen. They’re better TVs. So part of the price difference between TVs now and TVs in the 1950s is that money is worth less, but some of it is that TVs are better. If you’re interested in tracking how much your currency is worth less these days, you need to compensate for this.
On the other hand, if you want to buy a bottom of the range TV… you can’t buy a small bulky black and white TV these days. You’re going to buy a more expensive colour flat screen, and ok it’s better, but it’s also costing you more.
(This also applies to fridges, freezers, washing machines etc.)
Tldr RPI/CPI track changes in the value of money, and understate changes in the cost of living due to quality improvements in the goods people buy.
https://en.wikipedia.org/wiki/Inequality_of_arithmetic_and_g...
https://web.archive.org/web/20101214034940/http://www.statis...
This works well in ensuring the government can achieve its primary aim which is to transfer all surplus worker productivity to wealthy pensioners.
I'm not sure about the intent though. When the government first announced COVID benefits it was quickly revealed that they had no understanding what most vulnerable members of society were facing. It took several rounds of announcements until everyone was satisfied.
Likewise, the article's comment about pay increases for public sector employees made me cringe. At least on this side of the pond, the public sector has been hit hard and is in chaos since pay is based upon union contracts that were pre-pandemic. In some cases, union contracts expired early in the pandemic but where negotiations were stalled until recently due to the pandemic.
I'm amused there's no mention of brexit. I feel that's left the public conscious already even though the economic effects will ripple across the country for decades.
Don't worry, there are people who will bring it up over and over again.
Unless inflation, low pay, expensive housing, the energy crisis, etc are all uniquely a British problem I fear that Brexit may not be a factor in this at all?
That's nonsense reasoning. Brexit is not the proximate cause of all problems but its a long term driver of economic decline.
Or it's simply one factor among others. Closing your eyes and pretending it had no impact whatsoever won't make it go away.
you can either afford to buy a flat for a half million or you're living hand to mouth
Don't forget the buying power of overseas money.
- The UK has been sliding into political irrelevance for decades.
- Since around the mid-late 2000s, big chunks of Europe (like the UK) seem to have been sliding towards having much less available energy to fund their lifestyles.
- They shot their own economy during COVID, as many nations did.
They're doing pretty well to hold together as a political unit. I was worried it would be worse and I'm glad to be wrong so far.
Most western countries have got very good at internal security since the War On Terror, and anyone trying to do direct action or work outside the political system tends to get squashed very quickly.
(Obvious exceptions: France, which has much more of a riot tradition, and the Jan 6 events, which had insider assistance of some unclear sort)
Surprisingly, I don't think COVID has caused too much lasting damage due to being offset by the economic stimulus, although the number of dead or sick workers is probably enough to be significant. It does seem to have been Brexit: https://www.newstatesman.com/chart-of-the-day/2022/06/uk-eco...
That graph looks pretty suspicious. Why was the UK growing at exactly the average rate for an EU country before Brexit?
Wikipedia suggests [0] that the UK's GDP growth in 2019 is in line with & superior to Germany and France. It isn't really very illuminating to look at the UK vs the EU - there isn't any reason apart from that remarkable co-incidence in the graph to think the the UK would perfectly mirror EU trends.
[0] https://en.wikipedia.org/wiki/List_of_European_countries_by_...
(Your [0] shows UK 1.26 between France 1.49 and Germany 0.59, which is not what you said?)
No, it wouldn't be. The null hypothesis for me would be that the UK would under-perform the average, because they a huge economy relative to the rest of the EU and have less room to grow what with the various energy problems Europe is having.
I mean, maybe the graph in that report is weighted by GDP or something and the UK was holding growth in the EU back pre-Brexit. The match between the lines is really suspicious. The odds that the economies in the EU are that synchronised is low.
> (Your [0] shows UK 1.26 between France 1.49 and Germany 0.59, which is not what you said?)
Oh, whoops. I was looking at a couple of different webpages with different years data, maybe it was one of them. I default to wikipedia for linking. My bad. Anyway.
The issue here isn't really energy, the issue is the huge economic costs of lockdowns, costs that simply weren't considered at all in the general mass hysteria created by epidemiologists.
How does that compare with inflation other countries are also experiencing?
Everywhere printed money like crazy to pay for fighting COVID. Look at graphs of inflation. They are all very similar. They start taking off right at the start of 2021, i.e. just months after governments open the taps to fight COVID and that happens everywhere. Tradingeconomics.com has good graphs to see this.
It also seems likely to me that supply constraints are also working to push up prices.
I'm not sure how to disentangle all the different effects, but I'm sure there's more than one cause. It's all interconnected I guess.
How does that look different from "needing much less energy to fund their lifestyles" (due to efficiency gains and out-sourcing)?
The UK economy has grown substantially in the past 20 years, while energy consumption has decreased:
https://www.climatechangenews.com/2015/08/03/uk-total-energy...