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7 October 2021

Boris Johnson is asking for trouble by promising a high-wage economy

Universal Credit cuts, tax rises and inflation could thwart the rising living standards the Prime Minister has pledged.

By David Gauke

Those who hoped (or feared) that the experience of office might change Boris Johnson will have found this week’s Conservative Party conference a source of disappointment (or relief).

His media interviews and platform speech were typically Johnsonian. Depending upon your point of view, he was relaxed, humorous, largely unruffled, charismatic and exuded confidence and optimism; or alternatively, evasive, blustering, unprepared, frivolous and complacent. Most of us have already made up our mind as to which description best characterises him and whether or not we care.

It was a conference also devoid of much by way of policy announcements. This is not necessarily a bad thing – announcements made to the party faithful do not always withstand the closest scrutiny, and there is a Budget and Spending Review in three weeks – but this is a government that can be criticised for lacking policy coherence. This might have been the conference to dispel that perception, assuming that it was a perception that troubled the Prime Minister. It appears not.

And by all accounts the atmosphere was buoyant, reflecting the fact that the Conservatives’ polling remains solid despite the circumstances. Most commentators (and plenty of Conservative MPs) assumed that the government would fall behind Labour over autumn – and that may still come to pass. But the government has already announced a large and manifesto-breaking tax increase, and seen shortages at the petrol stations and supermarkets. Yet it still leads in the opinion polls.

The approach to the fuel shortages is revealing of Johnson’s mode of operation. Yes, it is true there are shortages of HGV drivers in much of the world, including China (a piece of information that has struck the Prime Minister as so astonishing that he drops it into every interview); yes, the petrol shortages in the UK have been driven by a surge in demand not a collapse in supply; and, yes, not all the shortage of drivers is a result of Brexit. It is perfectly evident, however, that the rapid abandonment of freedom of movement in the middle of a pandemic has made a bad situation much, much worse (as was widely predicted including, no doubt, by the government’s own officials).

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The government initially sought to deal with this issue defensively by making the points listed above. The arguments were thin but might have been enough to muddle through a few days of disruption, yet the Prime Minister took a different tack: a shortage of HGV drivers will be addressed by paying HGV drivers more because they will no longer be undercut by EU workers; that this is a benefit of Brexit; and this was part of the plan all along. The transition might be a little painful but we will end up with higher-paid HGV drivers and, for that matter, social care workers, fruit-pickers, construction workers and catering staff. We will move from being a low-skill, low-paid economy reliant on immigration to a high-skilled, high-paid economy based on UK citizens having more opportunities, he argues.

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The economics of this are nonsense. If we pay people more without improving productivity, the costs are just passed on to consumers. The argument that the route to greater prosperity is by just paying ourselves more might have been used by 1970s trade union leaders but it is a curious one when deployed by a Conservative Prime Minister. An analogy can also be made with trade protectionism – tariffs might boost the pay of some workers but those workers are also consumers and they will face higher costs too.

Economics, of course, will always be trumped by politics in Johnson’s eyes. A more closed economy results in lower growth but it appeals to the instincts of many voters. Rather than adopt a defensive posture, the Prime Minister has come out swinging. He is in favour of lower immigration and higher pay; his opponents favour higher immigration, lower pay and reversing Brexit. If there are problems, that is the fault of business for not upping wages.

Will it work? Johnson may take some comfort from the fact that he has a record of dubious economic claims that have not cost him politically. Brexit would be good for the public finances to the tune of £350m a week; we will get a great trade deal with the US; our EU trade deal will remove all tariff and non-tariff barriers. None of these claims were true but they were convenient to him at the time.

His hope will be that this is another example. There are, however, risks of taking ownership of the shortages and raising expectations over real-wage growth. Living standards are by no means certain to rise as inflation picks up, Universal Credit claimants lose £1,040 a year and tax rises take effect. Shortages – whether for fuel or food – may persist. As for encouraging greater business investment, Johnson’s pursuit of a hard Brexit does not suggest that this has been his priority.

Not for the first time, the Prime Minister is taking a political gamble. At some point his luck will run out, but as he left Manchester, both Johnson and the Conservative Party as a whole appear to believe that such a moment is not imminent. If, however, Boris Johnson wants to be judged on attracting business investment, improving productivity and sustainably raising wage growth, he is asking for trouble.

[See also: The gulf between Boris Johnson and Rishi Sunak should worry the Tories]