Tuesday, January 08, 2008

Pay Crunch

Are we in the comic or the tragic version?

Bottler and Darling have been rummaging in the back of the wardrobe again. They're desperately trying on more of those seventies cast-offs last worn by "Stayin' Alive" Sunny Jim.

Having already levered themselves into his "phased pay award" white flares, today they're attempting to pull on those classic three-year pay deal boots, the ones with the platform soles. Public sector workers will get a fixed 2% pa for three years, irrespective of what happens to inflation.

Darling is mumbling something about how this will be good for the workers because it will give them "certainty". He's only been Chancellor for six months so can hardly be expected to have grasped the basic economic concept of "money illusion". But the workers ain't that dumb, and with energy prices exploding and bread already at £1, they're unimpressed. A 2% pay award vs 4.3% RPI inflation equals a 2.3% real pay cut. And who knows where inflation might go from here.

Paywise, public sector workers have done well under Labour. Just as they always do. But just as always, once the money's gone, they're the first to feel the pain.

As taxpayers we can only sit and grind our teeth. Once again, a Labour government has blown a shedload of money on hiking public sector pay. And once again, it's ended with most of the public sector deeply demotivated and ready to strike.

With a weak government which still has over two years to run, it's clearly going to get worse. Strikes, certainly. Cave-ins, highly likely.

One cave-in we should particularly look out for is the RPI-linked deal. Already this morning we've heard the GMB calling for RPI plus o.5%, which at present would mean nearly 5%. On a public sector paybill in excess of £150bn pa.

BOM's more mature readers will recall RPI-plus was precisely the formula that hopeless Heath visited on Britain in 1973- just before the first OPEC oil price hike. And it really did turn a drama into a wage-price spiralling crisis.

Tyler well remembers starting work as a civil servant in 1973 and seeing his pay increase by leaps and bounds every single month as the RPI soared and the Heath formula kicked in.

How brilliant, he thought. It felt great.

That is, it felt great right up until the moment he went shopping for those flared trousers and platform boots. That's when he discovered he needed a wheel barrow to carry all the cash required.