Britain desperately needs a proper pay rise

UK workers are getting their biggest wage increase in years, according to new official figures – except they aren’t, says Ben Chapman

‘Paying people more, it seems, may have forced employers to become more efficient’ (PA)

UK workers are getting their biggest pay rise in years, according to new official figures.

Spoiler alert: we aren't. As many of us instinctively know, while pay packets are getting bigger, prices are rising at a faster pace.

The essentials - petrol, electricity, clothes - are all going up, and things are expected to get worse.

The imaginary "basket" of goods and services is 5.4 per cent more expensive than it was a year ago. That's a lot more than the 4.3 per cent average pay rise over the same period.

Statistics are important for our understanding of the world, but things are a bit more complicated than that. Aggregate figures sometimes fail to tell us much how people experience in their real lives, and, in any case, the figures you choose to measure make a big difference to what you see.

Caveats aside, the latest numbers do tell us something indisputable: on average, we can afford less stuff. The question is, what to do about it?

Sadly, in the circles that matter, the well of ideas is running a little dry. Received wisdom is that our first line of defence against soaring inflation is for the Bank of England to raise interest rates.

You might rightly ask: how is that going to help?

Higher borrowing costs will make my mortgage more expensive (if I have a tracker deal), but won’t do much to reduce the price of electricity, gas and oil.

It's perhaps unfair to have a go at the central bank for increasing rates. After all, it is an emperor with few other powers.

Government deserves more criticism. After more than a decade of stagnant living standards ministers’ only idea is to put up taxes.

It is unclear how this will make people’s lives better, or give our economy the jolt it needs.

A lot of our problems stem from international energy markets, but there are other factors pushing up prices, such as a shortage of workers.

A business that has to pay more money to its lorry drivers, cashiers and administrators, will soon have to charge more for its products, for example.

Higher wages for lower-paid workers is not a bad thing, no matter how much the Governor of the Bank of England tells people to worry about it. As ever, what is important depends upon what you choose to measure.

The Bank governor, who himself earns more than half a million pounds a year, invokes the spectre of a “wage-price spiral”. It is a phantom that exerts a fearsome pull over the people that decide how to run the economies of rich countries. Yet it is a scenario that few people born in the past 50 years will remember.

A cursory glance over economic history since the 1970s reveals that the exact opposite has happened: while workers have become more productive, their employers have not rewarded them with equivalent wage increases.

One might call this the reverse wage-price spiral. Wealth has been extracted from the people who create it by an unproductive class of people who do create nothing; from property owners collecting rent to chief executives commanding excessive salaries.

If we were to look at the economy as a pie, the slice given to people who contribute little, or indeed are a net drain, has increased. The slice left for labour has got smaller.

House prices have gone up much faster than the imaginary “basket” of goods that so obsesses policymakers; as has the pay of senior executives.

As a result, society's rewards have increasingly shifted from the people who do the work to those who don't; from people who create things to people who own things; from strivers to skivers.

There are some early signs in the latest figures that things are beginning to change. In recent weeks, wage increases are beginning to coincide with something that has eluded this country for almost two decades: higher productivity.

Paying people more, it seems, may have forced employers to become more efficient.

This makes intuitive sense. A company that must pay higher wages because there are few workers to choose from is more likely to find innovative ways to fulfil its customers’ orders.

It is just about possible to glimpse a more positive future through the current gloom. In this alternate reality, there is no wage-price spiral. Energy prices settle down and rises to living costs are slower.

At the same time, the labour market remains tight, so employers continue to grant decent pay rises while finding ways to be more productive. Workers with more money in their pockets spend more.

Ultimately, this is the only sustainable path to greater prosperity. Call it the wage-productivity spiral. Perhaps some wealth would, finally, "trickle down".