{"id":63490,"date":"2022-06-21T09:48:47","date_gmt":"2022-06-21T08:48:47","guid":{"rendered":"https:\/\/www.taxresearch.org.uk\/Blog\/?p=63490"},"modified":"2022-06-21T11:23:26","modified_gmt":"2022-06-21T10:23:26","slug":"the-economics-of-the-governments-pay-disputes-dont-stack","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2022\/06\/21\/the-economics-of-the-governments-pay-disputes-dont-stack\/","title":{"rendered":"The economics of the government’s pay disputes don’t stack"},"content":{"rendered":"

This is my second Twitter thread of the morning<\/a> (and no, for the record, I could not sleep):<\/em><\/p>\n

\n

The government wants a summer of pay disputes as it seeks to blame inflation on pay rises (which is not true). But is it really the case that it can\u2019t afford the pay rises public sector employees need? Another thread\u2026.<\/p>\n

There or two parts to answering question. One is to estimate how much extra tax inflation is bringing in. The other is to estimate how much the pay rises will cost.<\/p>\n

First, let\u2019s look at tax. Four taxes are likely to bring in a lot of extra money because of inflation reaching 10% or more. They are VAT, excise duties, income tax and national insurance.<\/p>\n

VAT was expected to bring in around \u00a3150 billion this year. There is some inflation allowed for in that but it\u2019s still very likely that will increase dramatically, but not maybe by quite 10%. The economy is slowing. But \u00a310 billion extra is quite possible.<\/p>\n

Excise duties on fuel, drink and so on are likely to rise a lot because of rising prices. They were going to bring in more than \u00a350 billion, near enough. To expect \u00a33 billion more is fair.<\/p>\n

Income tax should bring in \u00a3245 billion and national insurance maybe \u00a3155 billion. Pay is not going up by as much as inflation. But for technical reasons inflation is very good at boosting income from these taxes. A 4% increase is possible. That is \u00a316bn extra between them.<\/p>\n

Add these up and that\u2019s around \u00a329 to \u00a330 billion of extra tax to be paid because of inflation. When I say that Sunak is really coining it in right now because of his inaction on inflation, I really mean it.<\/p>\n

So, how much will a 4% pay rise plus 4% bonus for all state employees cost this year? The Office for National Statistics says 5.7 million people work in the public sector. On average they earn about national average wages (which is hardly surprising).<\/p>\n

That figure is around \u00a338,000 gross. So the pay will is around \u00a3216 billion. I know there are pensions on top, so add at least 10%. But we don\u2019t need to worry about national insurance, because that does straight back to the government anyway. So, call it \u00a3240 billion.<\/p>\n

Let\u2019s assume they were going to get at least 2% anyway. Now let\u2019s suppose they need 8% to be satisfied right now, half in pay and half in a bonus, to be reviewed in a year\u2019s time. So that is 6% extra now.<\/p>\n

6% of \u00a3240 billion is \u00a314.4 billion. But Sunak has a pot of \u00a330 billion to play with. Now, of course, there are other demands. He needs to increase benefits and other costs will rise. But he has \u00a315 billion left for that.<\/p>\n

Now I admit that\u2019s probably not enough to cover all the additional costs on other issues. But I can find him other savings.<\/p>\n

For example, I could knock well over \u00a310 billion out of government interest costs next year by changing the rules on the amount of interest to be paid to banks on their deposits with the Bank of England, which are set to skyrocket because the BoE has increased interest rates.<\/p>\n

And government ministers often say government interest costs were \u00a383bn last year but that\u2019s only because of some exceptionally dodgy accounting on their part. Nothing like that amount was paid. And if inflation falls - as it will - nothing like that amount will ever be paid.<\/p>\n

In other words, I can find tens of billions of savings with regard to interest with only a few straightforward policy changes. As a banker Sunak should have been able to spot these. It\u2019s anyone\u2019s guess why he can\u2019t see them.<\/p>\n

And the government could always run a small deficit to make sure people are protected from harm. That, after all, is what the government\u2019s job is. Well, that and preventing recession, which will happen if they don\u2019t pay these increases.<\/p>\n

So in that case, why is the government choosing to fight workers and crush public services when there is no need to as it could easily afford to pay public sector employees enough to protect them from the worst of inflation right now?<\/p>\n

Your guess is as good as mine. But what I note is that they and their friends in the Mail are very keen to say is that there is class warfare going on. And I agree, there is. But it\u2019s the government waging it on people who are simply desperate just to survive.<\/p>\n

What I know is that the economics of these pay disputes don\u2019t stack. The government could pay up. They won\u2019t. But don\u2019t believe that is because they can\u2019t afford to do so. It\u2019s because they want this fight.<\/p>\n","protected":false},"excerpt":{"rendered":"

This is my second Twitter thread of the morning (and no, for the record, I could not sleep): The government wants a summer of pay
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