The failure of government to lift wages is going to cause it an electoral problem

Ministers seem to believe that raising the floor created by the minimum wage combined with a tight labour market will fix the problem of falling living standards for it. But, as James Moore writes, a TUC analysis out today shows that it’s failing

The British economy has not boosted wages which are falling in real terms (PA)

Pay them more! So said the government in response to chronic labour shortages in critical sectors. Lorry driving. Food processing. You know the drill.

And so they did. At least, so some of the them did.

Tesco unveiled a bung to tempt drivers in the form of a four figure golden hello. Amazon sprinkled a little pre festive cheer around its Dickensian fulfilment centres. A few others decided to join their party. If you can’t beat ‘em...

Unfortunately, Boris Johnson’s ghost of Christmas present delivered birds to only a limited number of workers.

With the exception of a number of highly publicised examples, like the ones above, the cross sector labour shortages the British economy has been experiencing have not boosted wages, which are falling in real terms, and by quite a bit.

The Trades Union Congress (TUC) estimates that pay growth will come in at 0.8 per cent for the final three months of the year. That compares to a 1.6 per cent estimate of price inflation. The union body used data from the Office for Budget Responsibility (OBR) and the Bank of England to produce its figures.

Its annual pay growth estimate sits at 3.1 per cent, far short of the annual rate of consumer price index (CPI) inflation, which is currently running at 4.3 per cent but is expected to break through 5 per cent in the New Year.

The floor created by the government’s minimum wage, which it likes to refer to as the National Living Wage (NLW) for over 23s even though it isn’t, is going to rise by nearly 7 per cent in April to £9.50 an hour. So the lowest paid workers should be shielded from inflation’s depredations (although they’ve lost out over the past year).

The far superior floor offered by the Living Wage Foundation (LWF), meanwhile, has already risen. A new rate of £9.90 outside of London was announced last month, a 4.2 per cent increase over the previous one.

The latter is set with reference to the actual cost of living, not to what the market will bear or ministers feel is politically acceptable, and covers all workers at accredited employers, not just those aged 23 and above who get the government’s NLW.

If you raise the floor, surely everyone else should benefit. Because it should influence pay in higher brackets, right? Except the TUC’s figures show that this isn’t happening.

Outside those protected by Britain’s wage floor(s), people are getting poorer. And by quite a bit. The Resolution Foundation estimates that the average household will be worse off by £1,000 next year.

Why is this happening?

One possible explanation is that employers are wary of increasing wages even if they’re struggling to find staff because they’re worried about the continuing economic destruction created by the virus, and omicron in particular.

Rather than improving wages to tempt workers, they’re choosing to adapt and make do where they can .

The hospitality industry, which is going to have to increase wages for its workers in many cases because their earnings are often close to the minimum, but still can’t find the workers it needs, provides an example of what has been happening.

UKHospitality CEO Kate Nicholls tells me managers have been undertaking front-of-house duties, staff have been taking on longer shifts, some venues have even reduced trading days or menu options.

Other industries will likely be adopting similar practices, tailored to their own needs. This isn’t an effective long term strategy because you can only do it for so long before things start to break.

In the meantime it is contributing to a “cost of living crisis” worthy of the term. That represents a problem for a government currently embroiled in a dizzying array of scandals. Perhaps the collective noun for those should be “a Johnson of”.

The cost of living crisis may yet have a more long term impact on its fortunes than any of them, at least if it fails to grasp the nettle, because how long will the public be prepared to tolerate a government that is making them progressively poorer?

Johnson and the chancellor are facing a ‘cost of living crisis’ (Getty Images)

There are routes down which it could go. Bringing the unions in from the cold would be a start. As I’ve written previously, collective bargaining, where it exists, levels the playing field between employer and employee, leads to better wage outcomes. This is something even the Bank of England’s economists have recognised.

Wage agreements can be extended to address productivity, which would reduce the inflationary pressure, and cost pressure on employers. And there are examples of where this has happened in practice too.

The TUC has called for sector-wide fair pay agreements, which would be set through a process involving unions, employers and government, which is worthy of consideration.

Perhaps it is time for, whisper it, a fully worked out incomes policy? It wouldn’t be a bad idea.

But the Johnson administration, on those too rare occasions when it takes note of the problem, seems wedded to the hope that it will eventually fix itself.

To date, there’s scant sing of that happening.