There's good new research out from PCS this morning on the subject of pay. As they say:
Figures show that since the onset of recession in 2008 the real value of wages has fallen by 7%, or more than £50 billion a year. During the same period there has been a real terms drop in consumer demand of 5%.
A report by the union, 'Britain needs a pay rise', published today (Tuesday 12), argues this fall in the value of pay could be a major obstacle to the return of economic growth.
The report also busts the myth that civil servants are paid more than their private sector counterparts.
As they note:
Using data from the Office for National Statistics and research by the Institute for Fiscal Studies, and government departments, employment specialists Croner and Incomes Data Services, and the Resolution Foundation, other findings include:
- The government's four-year pay policy, plus the increase in pension contributions, will cut almost £7 billion a year from the value of public sector employees' pay by 2015
- Median pay in the civil service is 4.4%, or £1,263, lower than median pay in direct private sector comparators
- At executive officer level civil service pay was 10% below private sector comparators and at administrative officer level it was 8%
- These discrepancies in pay for executive officers and administrative officers are found in every nation and region in the UK
The report aims to generate a serious debate about the effects of low pay and government pay policy on the UK economy.
I hope this is well read: it deserves to be.
Note: I do occasional work for PCS. I was not involved in this research.
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Interesting stuff…never thought about it from this persepctive before. So it is saying if we all got a pay rise, we would not only stimulate the economy by spendning the payrise but i suppose we would also get more income tax in the door through PAYE? Surely a no brainer…am i missing something
No
You’ve got it
Pay rises for people who spend [the poor] instead of rises for people who save [the rich] gives payback in VAT as well.
So on that logic i assume the ideas such as reducing the UK tax rate, new CFC rules and the patent box,which all make the UK a more attractive place to do business will also stimulate the economy (i.e. more jobs, more money, more PAYE, more CT [assuming there are no abhorrent structures in place]) as business return to the UK?
Not at all
These encourage cash to leave the UK or encourage saving – both are a disaster with very low multiplier effects
What a stupid response; I assume deliberately. Encouraging tax avoidance and lowering the CT tax take isn’t going to stimulate the UK economy, since, as Richard and others have endlessly pointed out, when the already wealthy get even more money, it only benefits them and a few service industries they use (high end estate agents for example), whereas when ordinary people working in moderately paid jobs get more they will tend to spend it on consumer goods or capital goods that they can now afford e.g. a replacement car, or home improvements, or, if they’re in the position of an increassing number of people these days, decent food instead of dodgy processed food.
sickottaxdodgers: I would be interested in your evidence that a low CT rate has no effect on stimulating the economy. Admittedly it may not be the best stimulus but it would seem to encourage at least some inward investment to the UK (and perhaps avoid moving some things out of the UK).
All major corporates are sitting on majopr cash piles
That does not help recovery
Low CT rates just boost their cash piles
That is called a savings boost
We need investment, not saving
Richard, Foreign Direct Investment (not savings) in the UK was $53bn in 2011 (per the UK Parliament briefing papers). Lower tax rates will attract more investment when MNC’s compare the UK to other countries with higher rates. You accept this as you regularly say that tax competition leads ultimately to a race to the bottom.
When FDI means selling British companies to overseas buyers I wouldn’t get too hung up on that statistic
There is considerable empirical evidence to suggest that foreign-owned firms (especially American ones) are actually significantly more productive than native firms. There is also considerable empirical support for the idea that at least a portion of the productivity premium is paid out in the form of higher wages and other work-related benefits.
One of the surest ways to help average pay to increase across the UK is to facilitate foreign investments, a key tool for which is an attractive tax regime.
Respectfully, that says MNCs are good at cost splitting and are the beneficiaries of capital grants in excess of local companies
It does not suggest the possibility of extrapolation
do we have figures for the increase or decrease in dividends?
Not sure…..
The UK already has the worst labor productivity performance among developed nations (with Japan a close second). If, as you suggest, you increase labor compensation without productivity improvement this will drive all investment away from the UK towards other countries where labor is either cheaper or most productive (or a combination of both). This would rapidly lead to a collapse in domestic economic activity, a widening of the current account deficit, and ultimately a run on the Pound and a balance of payments crisis.
Of course you could argue for capital controls and trade restrictions, but that would imply leaving the EU, and largely exiting the global financial markets.
The idea of stimulating an economy by unilaterally increasing purchasing power has been tried many times before but never successfully. Just look up at the first couple of years of Mitterrand’s presidency in France to give you a good idea of what happens next.
Oh dear
the failed logic of neoliberalism that blames wage rates for all woe is at play
The problem is not with the wages per se, but with the idea that they can somehow increase without commensurate improvement in productivity. This would cause imbalances in the economy that would result in real (unemployment) and monetary (inflation, devaluation) dislocations.
There was nothing neo-liberal about Mitterrand’s experiment (he even had Soviet-style communists in his early years’ cabinet). His policy headline was “relance par la consommation (consumption-led upturn), a key element of which was a rapid increase in both the minimum wage and all civil servant’s salaries. Within 18 months, inflationary pressures had become uncontrollable, and the markets started a run on the Franc and the French Central Bank’s currency reserves.
What makes you think that similar policies would lead to a different outcome in the UK?
Go read the blog on what Martin Wolf has to say
There is no such issue
I keep talking to people whose workplace has seen staff cuts. The most recent was my bank. Yet there is no less work to do. I suggest that there has been a lot of increase in ‘productivity'(and in poor service due to over stretched staff and , also, in stress related illness). The bill for this has been picked up by the tax payer in unemployment benefit while dividends increase.
But the people sacked often end up self employed with very marginal productivity
That is the problem