Unsurprisingly, the unions, point the finger exclusively at price gouging by large companies.
Unite says it is a profiteering epidemic of greedflation, not workers’ wages, that is fuelling the cost-of-living crisis. The union doth protest too much. Small, family-run businesses are just as capable of profiteering as multinationals. Not to mention unions of extremely well-paid, semi-skilled railway workers.
But the unions do have a point. First coined by Ed Miliband in 2011 as a headline-grabbing phrase, the ‘cost of living crisis’ (which referred to the squeezed middle classes traditionally ignored by Labour) has been hijacked to point an accusatory finger at the government, when in fact it deliberately blurs what is a wider problem.
Last year, the governor of the Bank of England told workers not to push for higher wages because such demands, if achieved, would be a significant cause of inflation. Was he right?
The British wage-price spirals of the mid-1960s and dismal 1970s were in part a consequence of a heavily unionised workforce whose annual pay rises were contractually linked to inflation – the costly Retail Prices Index.
We saw how badly that turned out when repeated government attempts to control wages and prices failed to tackle inflation.
Today, union power is much less tyrannical, while employees in a larger private sector understand that they only have jobs while their businesses remain profitable. During downturns, they will pragmatically forgo a pay rise in return for keeping their jobs for longer.
Despite the wage deals struck by some unions and the higher wages paid by the private sector to attract talent, real wage growth (ie after inflation) remains calamitously negative – which means falling spending power.
Such pay deals – when considered in isolation – look unlikely to create a classic wage-price spiral. And yet, central banks appear to want to create a downturn sufficiently worrying that workers will settle for keeping their jobs and stop asking for higher wages. Something is not right here.
More recently, the Bank of England’s chief economist has said we need to accept that we are all worse off. Despite this not being news to anyone, dyspeptic outrage followed, even though he did not argue that the pain should fall solely on workers. What he meant was that in a situation where nobody tries to lose out, things get worse for everyone.
Furthermore, the workforce has contracted. Before Covid, European workers had returned home. After Covid, the remaining workforce shrank further. People working from home during lockdown re-evaluated their lives. Some retired earlier than planned while others suffered from long Covid and were unable to work.
