Sunak’s Dodgy Claims About the Cost of Pay Increases

As part of the Tory political strategy to confront the unions, Rishi Sunak has been making false claims about the real costs of funding a pay raise for all public sector workers in line with inflation.

Sunak has claimed it would cost £28 billion extra to deliver and added that every household would have to pay £1,000 to fund it. I have challenged him on this, and I look forward to his reply. Meanwhile loyal ministers keen on duping the public keep repeating the claim. But economists and fact-checkers have highlighted that such a figure is vastly inflated.

It takes just a few seconds to expose Sunak’s dodgy figure for the lie that it is. The public sector pay bill last year was £233 billion. So, increasing that by 10.1% to match inflation would not cost £28 billion. Furthermore, the government has already factored in a pay increase of around 2-3%. Once you take that into account, as the Institute for Fiscal Studies notes, such a pay rise would cost about £18 billion extra.

The government would then get around a third of this back in extra tax and National Insurance paid by the public sector workers themselves. This would reduce the cost further, by around £6 billion. So, such a pay award would cost less than half of the government’s stated £28 billion figure.

And of course, there would be no need to tax every household to pay for this. A small wealth tax on the very wealthiest households with assets over £10 million could do so.

Or we could end the injustice where taxes on profits when selling assets are paid at lower rates than the income tax you pay on your wages. Addressing this by equalising Capital Gains Tax rates with income tax rates alone would raise £17 billion a year—more than enough.

Workers’ Wages Are Not Causing Inflation

But workers are also being told by some of the most powerful people in the country that, even if affordable, higher pay would not be desirable. Workers should instead show restraint on their pay demands to help tackle inflation.

The idea that we have to lower wages to tackle inflation is totally laughable. Inflation is at its highest levels in decades at the very same time as workers are facing the biggest attack on their living standards in 70 years. Claiming that inflation is caused by workers having too much money—and so increasing demand—is a perverse distortion of reality.

What’s more, if excess demand from workers were driving inflation, then surely the government would be even more concerned that Britain’s billionaires are increasing their wealth by £220 million every single day? Or that bankers’ bonuses are up 28%, and bosses’ pay at the largest 100 companies is up 23%? Of course, no such action is demanded in relation to the rich and powerful.

What has really caused the spike in inflation is the global disruption to supply chains, especially from Russia’s brutal war on Ukraine and also from the ongoing impact of Covid.

But corporate profiteering is a major factor too. Gas and oil companies raking in eye-watering profits are the best-known examples of this, but studies, including from Unite the Union, now show this is happening across the wider economy as corporations raise their prices above their increasing costs.

It is excessive corporate power and greed, not workers’ pay, that’s driving inflation. As Robert Reich, the prominent US economist and former US Secretary of Labor under Bill Clinton, has emphasised time after time, ‘To control inflation, we must take aim at corporate profits, not working people.’

These soaring corporate profits can also be the basis for funding pay rises in the private sector too.

The International Monetary Fund’s Deputy Managing Director has noted that it’s possible to create a situation where wages rise but prices do not. In her words, the key to doing this is to reduce company profits.

There Is an Alternative

But there is one way the Tories are right: for those that the current economic model is designed to serve, there is no alternative to wage cuts. Their whole approach is based on driving wages down as far as they can.

Neoliberalism came to the fore just as the share of the economy going to workers’ wages reached record levels in the mid-1970s. Neoliberal economics was the tool to smash this.

It has been tremendously successful. In the era of neoliberalism, the share of the economy going in wages—that is, workers’ slice of the pie—has plummeted from 60% to less than half today. So hundreds of billions each year that would once have been going to workers now doesn’t. It’s daylight robbery.

That process is accelerating. We are in the longest squeeze on wages in two hundred years. Real wages are now not expected to return to their 2008 level until 2027, meaning two lost decades. If wages instead continued to grow at their pre-banking crisis rate during this unprecedented pay freeze, they would be £292 per week or £15,000 per year higher.

That is why a victory to those on strike is not only key to improving their own situation. It would be a blow to the very model that for decades has allowed the rich to get richer by making everyone else worse off.

In both the private and the public sector, real wage rises are possible as well as desirable. And they can be won. Key to that is standing side by side with every trade unionist on strike and building the widest possible movement in solidarity.

Enjoy your break comrades—and get ready to make 2023 a year not only of solidarity, but of victories.