With trade unions gutted, workers have no protection against soaring inflation

It was ludicrous for the Bank of England governor, Andrew Bailey, to suggest that people are in a meaningful position to negotiate their wages.

By James Meadway

Photo by Tolga Akmen/Pool via Getty Images

UK inflation is already running at a 30-year high, and official forecasts suggest more is to come, with a peak of 9 per cent or more. But in stark contrast to the last period of high, sustained inflation this country experienced, from the mid-1970s to the mid-1980s, British society is now alarmingly exposed to price rises. Trade unions, our major social defences against skyrocketing prices, have been eviscerated, leaving millions directly exposed to global price instability without any protection. Deprived of the social insurance of unions and collective bargaining, demands on the government to act can multiply, and protests begin to spread.

It is more typical to find unions presented as the inflationary villain, most recently by the governor of the Bank of England, Andrew Bailey. Bailey suggested workers needed to practice “restraint” in their wage demands to help bring inflation under control. This was widely (and rightly) mocked, with even the Conservative government distancing itself from his comments. But it wasn’t only the seeming hypocrisy of a governor who is paid more than £550,000 a year telling others they should be paid less, or the obviously ridiculous idea that paying, say, supermarket workers less in the UK would bring down the price of the gas we import from Qatar. It was Bailey’s quaint belief that workers in Britain were in any meaningful position to negotiate a “restrained” wage in the national interest at all.

For most workers, that simply hasn’t been the case for decades. As George Dibb, head of the Centre for Economic Justice at the Institute for Public Policy Research think tank, pointed out, when inflation surged in Britain from the mid-1970s to the mid-1980s, as it did across the Western world, trade union membership was reaching an all-time high, peaking in the late 1970s at over 50 per cent of employees. Since then, membership has been on a near-continuous slide: virtually wiped out in the private sector at just 12.9 per cent of employees, overall union membership is down to 23.5 per cent – slightly above its record low of 23.3 per cent in 2017.

Perhaps even more important than union membership, however, was collective bargaining. By 1979, 82 per cent of all employees in the UK, whether themselves a union member or not, were covered by some form of collective, workplace agreement on their pay and conditions. This meant that instead of an individual employee facing an employer when, for example, asking for a pay rise to keep up with price rises, some kind of joint agreement was in operation. Typically, this would be negotiated between workplace union representatives and the employers – as they are today, where collective agreements still exist.

The employment relationship has a power imbalance built in. An employee, as an individual, is set against the collective resources of the employer – who holds an ultimate sanction in the form of dismissal. Collective bargaining redresses this imbalance a little. Annual pay rises that match or even better inflation can plausibly be negotiated in a way that individual employees find much harder to make happen.

By the mid-1970s, both unions and collective bargaining had become essential defences for employees against economic shocks and insecurity. Like the welfare state that had grown up alongside them, these collective institutions operated to provide a form of shared social insurance to workers.

Unlike welfare provision in general, however, this was a form of social insurance that was provided largely without state involvement and, in contrast to the pattern in much of northern Europe, typically implemented at a firm or workplace level, rather than nationally. Strong collective institutions meant that even when annual inflation averaged 12 per cent, as it did in the 1970s, annual wage rises averaged 15 per cent – an improvement in average real pay over the decade, as measured by pay rises minus inflation. This is dramatically better than workers’ experience in Britain since 2010.

This arrangement was not without costs. Increasingly, above-inflation pay rises were being blamed for rising inflation – the theory being that employers simply passed on higher wages for their employees as higher prices for their customers. Profits, which had been consistently high throughout the preceding decades, were falling rapidly by mid-decade.

From 1975 onwards, the then Labour government attempted to implement an approximation to national collective bargaining between government, trade unions and employers in the form of the Social Contract agreement to hold back pay. The result was a small reduction in inflation, but in 1977 there was the first serious decline in real wages in decades. A succession of strikes, notably by lower-paid public sector workers over the winter of 1978-79, undermined both the Social Contract and the government, paving the way for Margaret Thatcher’s 1979 election victory with her pledges to end inflation and solve the union “problem”.

The extent to which she did the former is debatable: inflation was around 10 per cent when she entered Downing Street, and 10 per cent as she left. The real squashing of inflation, in Britain as across the developed world, happened over the subsequent decades, driven by the immense forces of globalisation and technological change that saw China enter the world market and a decade-long collapse in the price of manufactured goods.

But trade unions were broken. Between 1980 and 1993, nine separate pieces of legislation restricting trade union activities were passed. Membership slumped. Collective bargaining agreements, by 2019, covered perhaps as little as 15 per cent of the private sector workforce.

If inflation remained low, this arguably was not a problem: perhaps productivity improvements alone would deliver pay rises although, in the past decade, they have not. But at higher rates of inflation, our atomised labour market has left millions terribly exposed.

Chancellor Rishi Sunak lost no time in last week’s Spring Statement trying to claim there was nothing he could do about rising prices. But everyone can see the huge profits some companies, such as “cash machine” BP, are making because of them. And as one nervous, anonymous senior Tory told the press over the weekend, “Covid has broken the maths”, raising public expectations of what the state can do in an emergency: controlling prices or imposing windfall taxes, say. Lacking the protection of unions, millions will now be looking directly to government to act in their place.