Tuesday 8 January 2008

Inflation and Pay

There's something deeply sickening about hearing MPs on good salaries talking about holding down pay for working people to avoid inflation.

The current surge in inflation has not been caused by workers' pay going up. It has been caused primarily by rising fuel and food prices. Don't take my word for it - that's the message Mervyn King, Governor of the Bank of England gave to explain inflation as it passed the 3% (even by the government's CPI measure) in early 2007.

The other reason King gives is "businesses have become more confident that they could raise prices to rebuild profit margins". In other words, businesses felt they could charge us more to boost their profits.

In this context, the government's mantra, inevitably echoed by private sector employers, that workers' pay must be held down to avoid fueling inflation, really means that workers should have their living standards cut to pay for the increased profits. In an economy where many working people rely on credit even more than in the past, this is a dangerous road to go down for both individuals and the economy.

So UNITE is absolutely right to attack the government's latest wheeze - trying to impose multi-year pay deals - presumably below inflation - on public sector workers. The government is making a big gamble with such an explicit pay policy. They appear to have largely got away with it in 2007, but how much longer can union leaders loyal to Brown hold the lid on resistance if real wages continue to decline?

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