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13 September 2017

The public sector pay freeze is ending – but Brexit has already hit workers in their pockets

If the government can't make Brexit a success, everything else it does will be a failure too.

By Stephen Bush

It turns out there is such a thing as the magic money tree. The public sector pay cap will be lifted, with police officers and prison wardens the first recipients of the new, still-below-the-headline-rate-of-inflation largesse.

It’s undoubtedly true that the pressure on people’s pay packets was part of what happened in June and one of the reasons why the Conservatives lost their majority. It’s part of the Brexit story, too: for most people, the story since the financial crisis has been of pay that is stagnant at best, falling at worst.

But the difficulty is that the reason why the pay freeze became politically acute at the last election was only partly that Labour had a leader fully committed to opposing it, and only partly that it had gone on long enough that workers who were willing to sacrifice something to help “balance the books” were starting to wonder when, exactly, they might expect to be earning, at the least, the same in real terms as they were in 2009.

The big reason was what’s happened to the value of the pound. The fall in the pound, both in absolute terms but more importantly relative to the euro, has driven up prices and meant that money doesn’t go as far as it used to. Just as the fall in the oil price helped David Cameron in 2015, the fall in the value of sterling hurt Theresa May in 2017.

The good news for the Conservatives is that if they move towards Jeremy Corbyn, no one will vote Labour out of gratitude. What matters is if people feel better off.

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But the bad news is that while you can persuade MPs that it’s gauche to point out that the Brexit vote has already hit British voters in their pockets, and no one who voted Leave believes that the economy is worse off as a result of their vote (Will Jennings has a fascinating chart showing how Remainers and Leavers now see two different economies) a British worker gets less for their salary as a direct result of what’s happened to the pound since the referendum.

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Rightly or wrongly, the currency markets think that Brexit is a disaster, and that’s why the pound is low, which contributes to the increasing inflation in th British economy, which is why the pressure on pay is so acute. It’s a reminder that for all Theresa May hopes she can focus on other things, for all most in Labour believe they can use Brexit as a device to embarrass the government and usher in a Labour majority that much quicker, if you can’t make Brexit a success, everything else the government does will be a catastrophic failure too.