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11 February 2022

George Eaton

Boris Johnson’s promise of “a high-wage economy” has become a cruel joke

Far from encouraging workers to seek higher pay, the government is now telling them to accept lower pay.

Cast your mind back, if you can, to last year’s Conservative conference. A pre-partygate Boris Johnson was riding high and eyeing another decade in power. One of the promises he made, in an apparent break with free-market orthodoxy, was to forge a “high-wage economy”. 

“We are embarking now on a change of direction that has been long overdue in the UK economy,” Johnson declared. “We are not going back to the same old broken model with low wages, low growth, low skills and low productivity.”

Four months later, how’s that working out for him? About as well as No 10’s communications strategy. After briefly rising in the wake of the Covid-19 crisis – as workers came off furlough – real weekly wages are now back below their 2008 level. (Yes, you read that right.) The Bank of England, meanwhile, has forecast the fastest fall in living standards for 70 years, with a reduction of 2 per cent this year and a further half per cent in 2023.

And what has been the government’s response to this? To warn workers that they have to accept their grim fate. Simon Clarke, the recently appointed chief secretary to the Treasury, echoed Andrew Bailey’s Marie Antoinette-like intervention by declaring that “a wider message of general restraint is a very important one”. The “broken old model” denounced by Johnson is proving rather resilient.

Of course, the fall in real wages reflects the highest inflation for 30 years (5.4 per cent), with prices surging across the West. Johnson’s government cannot be blamed for this. But it can be blamed for its inept response.

Far from using this moment to encourage workers to lower their expectations, the government should be encouraging them to raise them – not least because it intends to tax them more. Despite the surge in inflation, Johnson and Rishi Sunak have confirmed that National Insurance will rise from 12 per cent to 13.25 per cent this April, a move that will hit workers earning as little as £9,880. It will also cost an employee earning £30,000 an extra £214 a year. To the insult of falling wages, the government is adding the injury of higher taxes.

It doesn’t have to be this way. What this crisis proves is that Johnson is prepared to will the end of higher wages but not the means. It suits the Prime Minister to pretend that the UK’s parlous living standards are the result of excessive immigration. But dismal productivity (reflecting a lack of investment) and enfeebled trade unions are more important culprits. A mere 26 per cent of UK workers are covered by collective bargaining agreements, compared with an EU average of 61 per cent. 

A high-wage economy is possible but it will require policies that the Conservatives are instinctively uncomfortable with: taxing wealth, not work, strengthening trade unions and borrowing far more for infrastructure investment. As it is, having barely recovered from one lost decade for living standards, the UK is slouching towards another.

[See also: Can the UK avoid two lost decades for living standards?]

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