ALEX BRUMMER: High price of pay deals

Friends arriving on the red eye from snow-bound New York couldn’t believe their luck at Heathrow. Instead of the winding immigration queues typical at US gateways, Britain’s temporarily fortified army border force proved miraculously efficient and even managed to welcome them to London with smiles.

Former US president Ronald Reagan discovered in the 1980s that not all aviation workers were indispensable when he replaced striking air traffic controllers with Air Force engineers.

The Royal College of Nurses (RCN) is a very different proposition. There are bottlenecks in training and a shortfall of 47,500 nurses – providing a strong bargaining position. 

Public sympathy is robust. Arguably, the Government could deal with nurse shortages if it rapidly opened the door to large-scale recruitment from overseas.

As a former Health Secretary, Chancellor Jeremy Hunt is particularly focused on the NHS, the way that targets distort outcomes and the redundancies in the system.

There has been capital investment in better hospitals and facilities. But it makes no sense for operating theatres and important kit to idle at the weekends. The RCN demand for 19 per cent increase is not credible.

Economists at Toscafund argue there should be a solution which offers 10 per cent now and bakes in the case for more modest increases later, as inflation subsides.

The first mistake made in discussing the disputes is to think that the UK is somehow facing the 1970s and 80s all over again.

I recall the former Governor of the Bank of England Mervyn King being invited to speak at the TUC. As he looked at delegates in front of him, he realised union power was now tightly focused on the public sector.

Some 23 per cent of employees, or 6.4m people out of a workforce of 28.3m, are currently covered by collective bargaining agreements. 

That is half the number in 1979. If the self-employed are taken out of the equation, the number drops to just 10 per cent.

The new boss of the TUC, Paul Nowak, spent his first hours in office touring TV studios arguing that the strikes could be resolved if the Government would just get around the table with union chiefs.

That would herald a return to the ‘beer and sandwiches’ era, which produced a wage and price spiral of the past.

THE Government points to an independent process conducted by the public sector pay review bodies, which weigh the evidence and are the basis for Government offers.

Awards recommended for 2022 were almost certainly on the mean side since, when evidence was taken last spring, consumer prices were way below double-digits.

There is a strong case for the outcomes to be reviewed and/or an upward adjustment made in the 2023 pay round, which is only months away. The second Government case is that over-compensation in the public sector would encourage a wage price spiral.

This is debatable. Much of the private sector has settled with big employers, such as the car makers and banks, preferring to make generous payouts (on average 6.6 per cent) rather than lose production or sacrifice services. It is possible that colleagues will come back with heavier demands next year if they see double-digit price rises.

Technically, strikes by the CWU against the Royal Mail and the RMT against the rail owners are not strictly in the public sector.

However, without accompanying productivity agreements, all over-ambitious wage deals will do is see a transfer of mail deliveries to more flexible logistics companies (as seen over Christmas) and commuters even more alienated by the railways.

The risk isn’t a wage prices spiral but a terminal financial crisis for the employers.

Could the Government afford to accede to the demands of nurses, ambulance drivers, border staff and the like? It could pay for them by further cuts in services. That would not be a desirable outcome in the NHS.

Or it could raise borrowing or taxation. More borrowing in a fragile gilts market, still impacted by the ‘moron premium’ of Liz Truss, might be risky.

Raising taxes would be un-Tory. Moreover, permanent increases add to the budgetary burdens of future generations as public sector workers are a fiscal liability because of unfunded, defined benefit pensions.

A series of shocks, the financial crisis, Covid and Ukraine have made the UK less well-off since 2008. Giving in to extravagant demands without radical reforms to working practices adds to wealth destruction.