What happens when you put more money into the pockets of working-class people is they spend it, and a virtuous cycle
begins.
By Fran Heathcote
This time next year, it will be twenty years since the run on Northern Rock began the banking crisis and ushered in twenty years of stagnant economic growth and wages.
Seven Prime Ministers have come and gone since then, all failing to boost living standards and overseeing declining public services.
After another change of Prime Minister this summer, there is an opportunity to end the seemingly endless spiral of decline.
The new Prime Minister has made a better start than his recent predecessors by recognising that the cost-of-living crisis is the central issue facing the country. The bus fare cap and the cut to VAT on energy are welcome, but they are not the fundamental change required.
If this acts as a down payment for more to come, then all well and good. But a succession of minor tweaks to a failing system will prove inadequate – and the frustrations that have brought down six Prime Ministers in 10 years will transfer onto Burnham.
Fundamentally, the cost-of-living crisis is not complicated. Households have too little coming in – due to real terms cuts to pay and social security – while their outgoings have gone up due to out-of-control housing costs and rising utility bills.
A couple of years ago, PCS commissioned academic research into the state of civil service pay – which found our members had, like many other workers, experienced real terms cuts in their pay since 2010.
But our research did more than this. It showed that increasing public sector pay, especially for lower-paid workers, acts as an engine of growth and more than pays for itself.
How does it do this?
Firstly, a major part of any increase in public sector pay is recouped in higher tax and National Insurance payments. There will also be a reduced entitlement to in-work benefits for some workers, saving the Government money
Secondly, lower-paid workers have a greater propensity to spend, and so if their pay rises they spend more in their local economy – a night out in the pub, a meal at a restaurant.
Thirdly, there’s the ratchet effect. A better pay rise in the public sector results in upward pressure in private sector pay, as businesses compete for workers. This results in higher tax and National Insurance revenues.
The simple truth is that you cannot have a strong, growing economy without increasing consumer demand. If people can barely make ends meet, they are not out there spending money in their local economy.
The academic research we have commissioned demonstrates it clearly. If you boost pay, especially low pay, you grow the economy – and that economic growth brings increased tax revenue that outweighs the cost of boosting pay.
So, whether it’s workers in central government or local government, whether it’s health workers or workers in schools, colleges and universities: we need fair pay.
And workers see on the horizon the forecasts of rising inflation – provoked by Donald Trump’s war on Iran. People are already seeing rising fuel prices, and that is starting to feed through into higher energy bills and higher food prices too.
You cannot have a thriving modern economy without rising real wages. For more than a decade, workers in the public and private sectors suffered real-terms cuts in their incomes.
In recent years, PCS has worked to ensure members at the lowest grades have had larger pay rises to try to insulate those at the sharp end of the cost-of-living crisis, but even those at the lower grades are earning less in real terms that in 2010.
The cuts in pay are only half the story though. The rising cost of housing – whether rent or mortgage costs – has hit people’s finances too, as have rising costs of energy and water bills, as well as petrol costs more recently.
That suppresses demand. If workers take home less pay – or a larger proportion of it is paid in rent and bills – then there is less to spend in the real economy that creates jobs.
We cut back on the weekly shop, on meeting friends in cafés and restaurants, on going to the pub after work. We cut back on taking the kids on days out, we don’t go on holiday, we cancel our gym membership.
What happens when you put more money into the pockets of working-class people is they spend it, and a virtuous cycle begins.
The simple truth is this: you cannot get growth back in the UK economy without putting pounds back in people’s pockets.
By standing up for our members’ jobs, pay and working conditions, trade unions are saving the economy.
That’s what PCS will continue to do. Because what’s in the interests of workers is in the interests of the whole economy.
- You can follow Fran Heathcote on Twitter/X; and follow the PCS on Facebook, Twitter and Instagram.
- This article was first posted in GFTU’s Federation News September 2026 issue.
- You can read more articles like this on GFTU’s Substack.
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