Increase pay, not profits!


“The scale of the cost of living crisis demands a radical response – a renewed & reinvigorated support for socialist solutions, not a retreat from them.”

Sam Browse

By Sam Browse, Labour Assembly Against Austerity.

As RMT, Aslef, TSSA, CWU, Unite and other unions’ members head to picket lines across the country over pay and conditions and with other unions balloting, including teachers and public sector workers, the repeated refrain from Tory frontbenchers and right wing pundits is that pay rises would only fuel a wage-prices spiral and ratchet up inflation.

By January, inflation could reach an eye-watering 15%, which will translate into people needing to find hundreds of extra pounds each month. Without pay increases, that is a huge real terms pay cut that will plunge millions into poverty; a crisis so severe that Gordon Brown was impelled to warn of the ‘timebomb’ of millions of people being subjected to ‘a winter of dire poverty’.

There are many immediately available options that make this avoidable, alongside an urgent need to transform our economy by tackling some of the structural factors driving inflation, poverty, and inequality. But first let’s deal with this: is it true that inflation-matching pay rises to stave off real-terms cuts will increase prices further? The argument from the right goes that boosting wages will increase consumer demand and therefore act as an upward pressure on prices, further fuelling the soaring cost of living for us all.

But wage growth is – and has been since the 2008 financial crash – at a historic low. TUC analysis has shown that people lost nearly £20,000 in real earnings between 2008 and 2021 because pay did not keep pace with inflation; more than a decade on from the financial crisis UK workers are still earning £75 a month less – in real terms – than in 2008. 

The real motors of the inflation we’re witnessing are clearly not rising wages, but profits and the structural weaknesses of our rigged economy. The economist, Grace Blakeley, made the point succinctly in debates about the RMT industrial action:

“If prices are going up across the whole economy, then the goods and commodities that people are selling will go up by 11%, so their profits will go up as well. So, if you’re not increasing wages, then you’re increasing profits and holding wages down, which is a redistribution of wealth from workers to bosses”.

The RMT’s Mick Lynch put it very clearly (and, in doing so, schooled the journalist interviewing him) drawing out what has been happening to the earning of millions of people for more than a decade:

“If you believe in Tory politics, you’ll believe that workers are responsible for a price-wage spiral. It’s not the case. Wages are chasing prices; prices are not chasing wages – because virtually everybody below the top strata is poorer now than they were ten years ago, so it cannot be that the low paid are creating price increases… The big shots in this economy – the Rishi Sunaks, the billionaires, and others that live on dividends and shareholdings – are raking in money. We have more billionaires than we’ve ever had in this society. The super-rich have never been richer, so what’s responsible for price-rises is the accumulation of profit in our economy.”

We should be extending our public transport system, making it more accessible, safer and cheaper. Yet the privatised train companies who have made vast profits – including FirstGroup who paid £500m to shareholders in December – are now proposing real terms pay cuts and redundancies for their workers. We don’t yet know what the January train fare increases will be, but they are based on the previous year’s inflation and so represent a further massive cost increase for people coming ahead.

In the energy sector Centrica, the owner of the retail energy company British Gas, just registered £1.3bn in profits – all while the expected increase in the energy price ‘cap’ is due to increase the average household energy bill to £4266 per year in January.

As the war in Ukraine has created uncertainty in fossil fuel markets, oil and gas companies have accumulated ever more vast sums of money, with the CEO of BP describing the company as a “cash machine” for its shareholders. Shell recently announced that this quarter it made a colossal $11.4bn. Yet, the Government’s  ‘reasonable worst-case scenario’ in its latest energy plan includes planning for energy shortages if there is a drop in temperatures in January.

Rampant profiteering has combined with longer term weaknesses in the UK economy to exacerbate the problem.  As The Guardian’s Larry Elliot argues:

“The reason inflation is heading for 10% and the trade deficit is ballooning is that supply is failing to keep up with demand, and the only way to deal with that is to address the UK’s chronic deficiencies in skills, investment and infrastructure”. 

Those structural weaknesses in the British economy – which in energy includes our reliance on gas, rather than investing in renewables – make us more susceptible to price increases and the global disruption to supply chains caused by post-Covid bottlenecks and the war in Eastern Europe. In a follow up article, Elliot expands this point drawing the different crises together as stemming from a basic failure to invest in our infrastructure and our public services – our transport, energy and water systems, the NHS, childcare – which is prohibitively expensive – social care, and our failure to build genuinely affordable and council homes, to name just some examples.

Far from sitting back and letting inflation rip – and telling those workers poised to take action to simply accept dramatic real terms pay cuts – we need to increase wages and living standards, stop the rampant profiteering, and fix the long-term underinvestment in our economy and public services – actions that would lower costs for everyone.

That must include using public ownership for key parts of our infrastructure to make them fit for the 21st century, the climate emergency, and improve services for all. And it means using the tax system to claw back the accumulated wealth of the profiteers. The emerging arguments that increased unemployment could deal with inflation must also be completely rejected; achieving full, decent, employment is part of the solution.

The scale of the cost of living crisis demands a radical response – a renewed and reinvigorated support for socialist solutions, not a retreat from them. The accumulation of profits in the private sector is at the heart of the multiple crises we face. Business-as-usual private sector solutions cannot be the answer. It’s time to reject the barbarism of mass immiseration – as those fighting for real pay rises are – and begin the fundamental transformation of our rigged economy.

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Featured image: Kingwood DO CWU members are ready for the second ballow, June 21st , 2022. Image credit the CWU.

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