With just a few words, Andrew Bailey, the governor of the Bank of England, perfectly crystallised the state and the fate of the nation. Tone-deaf and socially oblivious, the voice booming out from the economic seat of power captured the history of the last lost decade.
“We do need to see restraint in pay bargaining, otherwise it will get out of control,” Bailey told the BBC last week. As wages continue to fall, inflation is set to hit 7.25% in a couple of months, while pay will rise by far less. TUC leaders protest that “workers have been hammered and now they’re coming back for more.” “This is a very tough message to swallow when take-home pay is falling,” the Institute for Fiscal Studies director, Paul Johnson, tells me, pointing to a decade of lost pay – the longest period of pay stagnation in many years.
The governor’s Marie Antoinette-style insouciance struck a wearily familiar chord. This authentic voice of social negligence has made the British economy one of the most unequal and unproductive among its European equivalents. Pre-pandemic, real wage growth in the UK became the weakest among the advanced nations in the G20. The prime minister and chancellor brag of the “fastest growth in the G7”, but only as we climb out of the deepest slump.
When the governor says “we do need to see a moderation of wage rises”, he ignores his own prediction of falling incomes. “Why wages? Why didn’t he call for profits to be squeezed?” Torsten Bell of the Resolution Foundation asks with a rhetorical flourish. He tells me: “The big picture is that wages have been rubbish the whole decade, while productivity plummeted after 2016 due to Brexit uncertainty.”
The governor’s destructive interest rate rises are a doomed response to global price inflation that lies beyond the Bank’s control. This kneejerk call to cut pay is just a natural banker’s reflex. A silent class war has taken place during the past decade, as the winners have carried off undreamed-of booty. Thanks mostly to the Bank’s quantitative easing which inflated assets, not productive investment, the decade created billionaires, whose wealth rose by 310% according to The Decade the Rich Won, a new documentary on BBC Two.
There were no such calls for a modicum of “restraint” from those whose wealth ballooned after the financial crisis. Quantitative easing gifted such a vast asset bonanza to the already wealthy that it astounded even the English financier Guy Hands. “Those of us in private equity got incredibly wealthy. The effect was the rich got richer,” he told the BBC. Was he grateful? He removed himself and his company, Terra Firma, to shelter in Guernsey.
This is the great levelling down: pay and homeownership is falling. Over the past decade, property prices have risen by around 60%. Public sector pay has been hit the hardest, falling 2.4% just in the year to November, says the IFS, despite Boris Johnson proclaiming the pay freeze to be over. Local government workers’ annual salaries are down by £1,600, with teachers 8% behind on their 2010 salaries, according to the TUC.
Falling pay isn’t just about hungry families relying on food banks. It damages public services, too. In the NHS, with its impossible waiting list, nurses’ pay is already down by £2,700 a year. I talked to Ella, a highly specialised neurosurgery nurse, precious to the NHS; but she has just left, sad to go. She was paid £29,000 – around the national median – but now she earns more than £41,000 in a private hospital.
It’s not just the money: in her NHS section there were 12 staff vacancies, and she alone cared for eight very sick patients. “It gives you nightmares and panic attacks that you’ll make mistakes. You do bank shifts to make up the pay and it’s very, very hard.” Now she cares for four patients with a senior nurse supervisor, in a department with no vacancies: nine other experienced nurses left her NHS hospital with her. “If they had the staff, if the work was manageable, if the pay was enough without overtime, none of us would leave the NHS.” Her story is a warning: an underfunded NHS that underpays and understaffs will break the health service if the contrast with private health grows too great.
The governor’s spectre of wages rising “out of control” was greeted with such indignation that No 10 slapped him down, the prime minister desperately seeking popularity. However, the austerian chancellor’s silence was widely taken as approval for Bailey’s stance. His trope summons up scary 1970s folk myths, in which unions were blamed for striving to keep up with mushrooming inflation. In 1974, Labour forged a social contract to curb inflation by holding down prices if unions held back wage demands. It fell apart when wages still fell below prices.
Nowadays the governor offers nothing in exchange for pay “restraint”, a sign of how weak unions have become. They are virtually absent in a private sector where an insecure, atomised workforce faces “fire and rehire” and temporary contract threats. Only a few niches, such as HGV drivers, gain anything from current labour shortages. Though unions are stronger in the public sector, pay is hardly “out of control” there. While nurses and teachers feel the moral arm-twisting of caring for their patients and pupils, the comparatively good pay of train drivers proves the value of flexing union muscles.
Meanwhile, as Johnson woos his rightwing MPs by ditching any “lefty” policies, the government’s promised employment bill – which was supposed to ease the worst of gig economy brutality – has vanished. Expect no aspirant for Johnson’s job to to pay injustice. The one hope for wages, says the TUC, is a Labour government implementing Rachel Reeves’ pledge for fair pay agreements across every sector. Labour would end zero-hours contracts and bogus self-employment, with guaranteed access to a union and employee working rights from day one. Until that day, the boot is on the banker’s foot.