The Financial Fairness podcast
Episode Eight: Low pay in a high-cost Britain
Guest: Kate Bell, Assistant General Secretary at the Trades Union Congress
For many years wages have stagnated, at a time of low inflation people did not feel the hit, but now with prices on all the essentials from pasta to petrol going through the roof workers are feeling the hit. The episode examines the pay gap, and how it has changed over the years, low pay and what can be done to address it.
How do we make pay fair?
Mubin speaks to Kate Bell about pay. What is a fair wage? How has pay changed over time? How do we compare to other countries? And of course, pay is the main factor behind the recent industrial action we have seen across a range of sectors, which we’ll also be touching on.
Mubin Haq: Welcome to the Financial Fairness podcast with me, Mubin Haq.
Kate Bell: When you look at people's real level of pay – that is still around its 2008 levels. I think if anyone wants to know why we’ve seen a big wave of industrial action this year, that lies at the heart of it.
KB: Higher minimum wages are not leading to job losses. When people tell you, workers can’t have better terms and conditions because of economics – it’s not economics, its politics.
MH: One of the things you hear a lot, which the government was saying – higher wages just lead to an inflation spiral.
KB: That argument is nonsense. Companies protecting their margins had twice the contribution to inflation, than workers' wages. This attempt to blame workers when they are seeing the value of their wages fall, really just doesn’t make any sense.
KB: David Cameron and Osbourne ‘we’re all in this together’, that was wrong then and its wrong now. This year sales of Porches have reached record highs, so not everyone is in it together.
MH: For many years wages have stagnated and with prices on everyday essentials remaining high, that wage squeeze has become even more acute.
Pay is the leading factor behind recent industrial action. We’ll be examining how employers might be able to increase wages, whether higher pay does lead to an inflation spiral, and despite the success of the minimum wage, why there’s a lot more we need to do in relation to low pay and insecure work.
Joining me today is Kate Bell. Kate is Assistant General Secretary at the Trades Union Congress, a member of the Low Pay Commission and also a Trustee of the Financial Fairness Trust.
So Kate, thanks for joining me today. Why has pay become such a hot topic?
KB: Well, I think pay's been a hot topic for a long time, but the big issue is we are in the longest wage squeeze for 200 years. So, when you look at people's real level of pay - that means pay when you take inflation into account, that is still around its 2008 levels. So, we've had 15 years when your pay and your standards of living that your pay affords you, haven't really gone up. And I think if anyone wants to know why we've seen a big wave of industrial action this year that that lies at the heart of it.
MH: Yeah. So, 200 years, we're talking about Napoleonic Wars nearly, aren't we?
KB: Yeah, that's right. Well, we say the Napoleonic Wars and then I get anxious because I think, when were the Napoleonic Wars? Does anyone understand that reference? But that's another way of saying it. Yeah.
MH: That was 1815, wasn't it? Waterloo. So, we've had this wave of industrial action and it's affected lots of sectors really, hasn't it? Or has it been mainly the sort of public sector?
KB: Well, I think you have seen industrial action concentrated in the public sector because, obviously they've seen some of the largest pay restraint. And let's remember, most of the public sector experiencing pay freezes and one cent pay caps during the years of austerity throughout the 2010s. So, we have seen, big pay squeeze in the public sector and their pay, that reflects the fact that their real pay has fallen as well.
But of course, we have seen waves of industrial action in the private sector, too. And that industrial action, securing some really decent pay deals.
MH: And how much has pay fallen in the public sector over that sort of 15-year period? Do you have some sort of overall figures there?
KB: Cumulatively, the average worker's lost out on about £20,000 worth of real pay rises. So, if your pay had risen by the amount it was rising before the financial crisis, if it had carried on going up, at that rate, you'd be £20,000 better off. And that is a large amount of money.
And of course, the recent spike in inflation has really put pressure on families’ budgets, on everybody's level of pay. But I think it's really important we remember that it's come after a period where incomes have been really, really squeezed. And that's why I think many people have just felt, oh we just can't take it anymore. Not just because prices have spiked this year. But it comes at a time when people have kind of been running on empty because of that decade of pay squeezes and pay falls.
MB: So, this is the straw that broke the camel's back in effect.
KB: I think people just had kind of nothing left to give. And again, that's why I think you've seen this wave of anger actually about the conditions people have been forced to live in. And for some time, the unwillingness of the government to actually recognise those and do something about it.
MH: And we've seen a pay settlement offered by the Prime Minister; can I get your take on that? So, it's roughly 6%.
KB: Yeah, six and a half for teachers and then different offers in different bits of the public sector. I think, our unions will be looking at that. But I think what we should really recognise is, how far we have come.
So, if you think to kind of back in December 2022, we had a government saying, we won't negotiate with unions, we can't possibly put up pay, we won't sit around the table with them, our aim is to take a step back. Since then, we have had government actually realising, as a consequence of all those members who stood up and took industrial action, that they do need to get around the table, they do need to talk, they do need to negotiate and that they could deliver better pay deals. So, you saw that in the health service, again, you remember the government saying, “we won't negotiate, we won't negotiate”. Then actually sitting around the table with the unions, and putting a deal together, which wasn't everything that members wanted, but was something that the majority of our health unions could recommend to their unions. Then you saw the same thing in the civil service, again, not everything members wanted, and, still, some consideration of, is that pay deal going to be accepted across the board? But government moved.
And finally, with education, think back even a few weeks ago, the government were kind of trying to tough it out and kind of criticise the education unions. Now they've got to a place where all four of our education unions who'd got that mandate for strike action, have been able to issue a statement saying, we think this is the best we can do through negotiation, we've got some commitments on workload. Again, this isn't enough to solve the recruitment and retention crisis that we've seen right across our public services, but it does show that negotiation works. And I think one thing it's just worth us thinking about is where we could have been if, back in January, the government had recognised, these workers have got a fair point, let's sit down and talk to them then. Rather than kind of forcing them to go through days of costly industrial action, which is tough for those members, and of course, tough for people who rely on services, too.
MH: Was that the government's stance just because they thought they could win and the unions would back down eventually? Is that the rationale – it was a bit of brinkmanship?
KB: I can't really judge the government's motivations. That's not my job. And it's difficult to do sometimes. But I do think there was a little bit of kind of, I don't know, let's take on the unions, some kind of 1980s style nostalgia. And I think they've been proved badly wrong because, as you've seen, public support for the strikes has been really, really strong because people recognise, either they have someone in their family who acts in the public service, or they too, will have been through that decade of pay squeeze, because it's affected all of us. And I think people have really actually welcomed people standing up and doing something about it and enabling us to have this conversation about what's gone wrong in our economy where teachers and nurses are having to use food banks to make ends meet.
MH: Yeah, it's been quite remarkable the public support, hasn't it? Because it feels quite different from previous periods.
KB: Yeah, I think that's right. And I think, it hasn't taken us by surprise, but I think it has taken the government by surprise. But, there used to be this kind of, do you remember the sort of David Cameron and Osborne 'We're all in this together'. And that was wrong then and it's wrong now.
A thing my boss, Paul Nowak, has pointed out several times is that this year, sales of Porsches have reached record highs, so not everyone is in it together. But I think most people - the majority of people across the economy - have experienced that massive real pay squeeze, have been struggling to make ends meet and know that something has gone badly wrong.
MH: Okay, I'm gonna get a bit ‘Daily Mail’ on you now. One of the things that they would talk about is rail workers and very high pay and they talk about average wages being north of £50,000, in terms of starting pay. Are these workers really in need and why are they holding the country to ransom?
KB: Well, look, of course, these workers are in need and those statistics about starting pay just aren't accurate, they've been distorted. But I think what's worth saying is that rail workers who don't have to negotiate with the government have managed to do deals across pretty much all the companies they negotiate with. You know, where the government hasn't been involved in signing off those pay deals across local rail companies, those which government doesn't hold the kind of sign off power in the franchise, they have been able to negotiate deals right across the country. It’s only where government actually kind of holds the pen on saying, ‘yes, rail companies, you can agree a deal’, that the rail unions haven’t been able to come to an agreement. Those workers have got a right to take industrial action. Their real levels of real pay have been falling. They're also facing big threats of job losses, job cuts. You've seen that proposal to close ticket offices, which isn't just bad for the people who work for them, but obviously bad for people who use those ticket offices across the country. And here, it does seem to be where government keeps on trying to play this strategy of let's provoke a row.
I don't know what the government's motivations are. But I do think it's notable that they are pushing forward with their Minimum Services Level Bill, which is basically an attack on the fundamental right to strike. That's a bill that has been criticised by everybody, from the government's own regulatory policy committee to, just a few weeks ago, the International Labour Organisation basically told the government that it needs to think again about how it is actually talking to and consulting unions. So, it's a bill that nobody thinks is the right thing, nobody thinks is going to work but the government thinks is a way to show it’s somehow getting tough with unions, and they are pushing ahead with that. And I think that starts to tell you a little bit about how in some parts of government, there's clearly still this desire to pick a fight.
MH: So just taking that long term view, again, we've seen a squeeze in terms of pay, and as you said, the longest squeeze we've seen for 200 years. Why is that happening? I hear a lot from economists that it's all about productivity. What's at the heart of this?
KB: People describe it as the ‘productivity puzzle’, and that is real. We can quite clearly see some things that have gone wrong in the UK economy, which we could fix. So, let's remember those years of austerity, government cut spending sharply and growth has been anaemic for the whole of the last decade. Economic consensus has shown pretty clearly, that those huge cuts in public spending slowed down economic growth, they sucked demand out of the economy, they damaged our public services, which are, of course, vital for running our economy, and that contributed to the big pay slowdown.
So, you can think about that on a kind of demand level. So, less money flowing around the economy, less incentive for businesses to invest, less production, less productivity, less pay. But you can also think about that on a kind of supply level, if you like. So, what are the inputs into whether businesses can run effectively? We've heard a lot about labour shortages in the last year and people being ill. The state of our health service certainly has something to do with that. So, that lack of investment in health has left us with a sicker workforce, basically, fewer people to do those jobs. That's harming our productivity too.
Think about skills. If you talk to businesses, they will all say, “we badly need investment in skills and we can't find any skilled workers”. And yet businesses themselves have not been investing in skills. And at the same time, government cuts funding for further education - for adult education - by 40% over the last decade. So, in some ways, is it any wonder that businesses can't find that skilled workforce?
Another feature of the kind of UK economy is, we don't really give workers much of a say in how companies are run. So, many other more productive, more successful European economies, give workers a much stronger voice through collective bargaining - that's where you collectively negotiate your terms or conditions with your employer. But it's also a process where workers have a voice in the company and can say that this process isn't going to work or, we could make some improvements in how we're doing this here. And many other European successful economies also have workers on company boards, which is another way where you have people who actually care about the long term success of the company, rather than those who maybe don't care about the productivity as long as the money is being paid out to shareholders at the end of the quarter, actually changes the conversation in those boardrooms. And we think that can make a big difference, too.
MH: Yeah, and you touched on earlier about we've got a record number of sales of Porsches. There are some people in the workforce who are doing well. What's been happening in terms of a fair share going to those on lower incomes or on median incomes. How has that changed over time?
KB: You have had dividends rising three times faster than wages in the decade up to 2019. So, that's payments to shareholders going up three times as quickly as the payments to workers. So, the kind of distribution between, basically, capital and labour being skewed towards the shareholders and away from the workers. But you've also seen that big squeeze for workers in the middle.
Now, since 2016, we have had a more ambitious minimum wage policy, which means that government set this target for the national living wage, as it's now called but it's basically the national minimum wage, to reach 60% of average earnings by 2020. And it now has a target for that wage to reach 66%, two thirds of average earnings by 2024. That means you have seen pay pushed up at the bottom. But at the same time, those on kind of average earnings, haven't seen their pay going up. And, when we're talking about that 15-year wage squeeze, we're talking about the kind of average worker, and they're the people who I think have really been hit hard in this crisis.
MH: The trade unions have also seen a big decline over this period. So, if you go back to the late 70s, we had something like 13 million workers as members of trade unions. So, we've now got about six and a half million?
KB: Yeah, that's right and we think that's a big factor in the kind of long-term increase in pay inequality. So, it's not just us who think that. The IMF have shown pretty clearly that trade union density and collective bargaining coverage is associated with lower inequality.
MH: And is that reflected in terms of other countries? So, where you've got countries which have got higher trade union membership, you've got better pay for those in the middle and on lower incomes?
KB: Yeah, that's right. So, there's work by the IMF but also the International Labour Organisation and the OECD basically says, stronger collective bargaining coverage - so the more people who have the right to negotiate their terms and conditions collectively, through a trade union, and negotiate them collectively with employers, lower pay inequality.
MH: Some of the steps we've seen the government take here, and it's been mainly Conservative governments, has been about better reporting. So, we've seen stuff like the gender pay gap and we've seen pay ratio reporting. What difference do you think that makes?
KB: Look, having information is the first step, we have welcomed those steps, but they can be a bit toothless. So, there's no requirement, take the gender pay reporting requirements, for example, no requirement to then produce an action plan with what you found about them. We still don't have ethnicity pay reporting. We don't have disability pay gap reporting. And those could be really important steps.
But I think also, if you go back to that kind of need for a collective voice at work, if we had gender pay gap reporting combined with a stronger voice for trade unions, then trade unions, the people in the workplace, could be actively involved in shaping - okay, we've got a big gender pay gap, why do we think this is? What's going on here? You'll have seen recently, trade unions actually winning quite a lot of cases on equal pay where women have been paid less than men for doing a comparable job. And, trade unions have been able to show that was unfair and illegal. So, that information has been really important, but you need people who've got the power to actually do something about it and you need those companies to have those requirements, too.
MH: You've touched on already the national minimum wage, and you sit on the Low Pay Commission too, so you're really well-placed in terms of understanding this area. It's been a huge success in many ways, hasn't it? But as you said, we've seen this sort of stagnation of pay in the middle, but even at the bottom, we've seen quite a lot of stagnation. So, the wage floor has risen substantially. But if you're hovering above that, you've not seen necessarily huge pay increases, have you? It's condensing really, of pay at the bottom. Is that right?
KB: Yeah, I mean, I think that is right, I think we should pause for a minute to think about the success of the minimum wage policy. You'll remember when the minimum wage was brought in back in the kind of late 90s, there was all these fears about the minimum wage is going to be job destroying, the CBI kind of warning that this was basically going to destroy employment in this country. And none of those fears came to pass. You had some of those fears, again, even when there was the suggestion of this more ambitious target for the national living wage in 2015. And that hasn't happened. So, study after study has shown that higher minimum wages are not leading to job losses, and guess what? Companies could have afforded to pay these wages all along. And I think it's important just to notice that, both because, when people tell you, workers can't have better terms and conditions because of economics - often it's not economics, it's politics. And I think that's what the success of the minimum wage has really shown. But also, because it shows that we can make a difference. The problems we have with the low paid labour market, the existence of zero hours contracts, for example, they're not intractable. They're because governments haven't been prepared to act. Ok, we've been pushing up the bottom, but what's happened to everybody else? Again, that's where we think collective bargaining is so important, because if you had trade unions, in companies across sectors saying, ‘okay, this is the minimum that has to apply to everybody’. But what reward should you get for experience? Where are the increments in this pay scale? What happens when someone's been here five years? What is the difference in skill between these two jobs and how should this be rewarded? Then you get to have pay growth for everybody, basically.
So, it is important to note the success but important that it's, it's just kind of one tool. And we need many more if we're going to have better pay for everybody.
MH: Yeah, and we don't really have that sort of sector-based discussion really apart from, things like the NHS, teaching, it's missing, isn't it, massively?
KB: I think we should really notice how unusual we are in the UK, amongst European countries. So, in Austria, for example, 90% of employees are covered by a collective agreement and those agreements go right across the economy. High levels of collective bargaining in the Nordics, people are really familiar with, but also in Spain, in Italy, in France. And those are countries where we've seen lower pay inequality, and also, in recent years, more successful economies, too.
MH: Do you think there's a mood for potentially expanding some of the remit of Low Pay Commission?
KB: That's a really active discussion right now. One of the things the Low Pay Commission has really shown is the success of a social partnership model. So, on the Low Pay Commission, you've got three people representing workers - I'm one of them - you've got three people representing employers, and then you have three independents - one of whom chairs it, and the other two who are normally academic economists. And one of, I think, the things that lies behind the success of the Low Pay Commission and the minimum wage is that those different perspectives, are brought into that discussion and, ultimately, we have to agree. And that's what kind of collective bargaining is. It is a process of negotiation and agreement.
We need much more of that process of dialogue, of agreement and of bargaining across the economy. Whether we should site that all in the Low Pay Commission, I'm not sure, basically. So, we've advocated for sectoral bodies, fair pay agreements, sectoral collective bargaining, call it what you like, but places where it is possible for unions and employers to come together across a whole industry and bargain for a set of minimum terms and conditions that apply to that whole industry, not just an individual company. I think we need that direct bargaining basically, that is between unions and employers. That's the absolute key.
But I'm also not averse to the Low Pay Commission perhaps having a wider advisory role. One thing we did on the Low Pay Commission is, it was asked to follow up some of the recommendations of the Taylor Review into employment conditions, if you remember that way back in 2017. So, Theresa May had asked Matthew Taylor to look at good work, basically. And one of his recommendations was that the Low Pay Commission looked at whether there should be a higher minimum wage for workers on insecure contracts. The Low Pay Commission said, no, that's not going to work. It's going to be too hard to enforce. But actually, what those workers need is secure contracts, a right to a contract that reflects your normal working hours, a right to have decent notice of your shifts and a right to a payment when your shift is cancelled. So, that was kind of outside the Low Pay Commission's normal remit, but, workers and business were able to agree on a set of recommendations - a set of recommendations that government talked about implementing but has done absolutely nothing with yet.
MH: And why hasn't it done anything? Because, that was commissioned by Theresa May, the Taylor Review. There seemed to be quite a lot of hope and a lot of consensus in some of the big issues that he'd identified. And it just all seems to have gone nowhere.
KB: Well, you will have noticed that there has been quite a lot of political change over the last five years or so since Taylor wrote that review. But even the Boris Johnson government promised...
MH: Oh, we did have Brexit, yeah.
KB: Yeah, we had Brexit, we had a pandemic, but these are things which expose the issues that Taylor was talking about. And that was post the Brexit referendum, if not post Brexit implementation that he carried out his report. But even the Boris Johnson government promised 20 times that they were going to bring forward an employment bill, then decided that there wasn't enough parliamentary time for it. So, it hasn't been seen as a political priority by this government. But I think most workers certainly see it as a priority and certainly want to see, whoever forms the next government, that being put high up the agenda.
MH: Obviously we've got these issues about pay. But as you've been touching on, we've got so many issues to do with conditions that workers are facing. And then we've seen this massive growth in self-employment. So, what's the kind of things that you would be recommending there?
KB: So, we estimate there's about 3.6 million people in some form of insecure work, whether that's low paid self-employment, zero hours, contracts, insecure agency work. Again, the key to this is basically collective bargaining. We know that stronger trade union rights are the best way to improve workers’ rights. But there's really important legislative change that we could see too.
So, we want to see a ban on zero hours contracts. We don't think it's right that anybody should not know how many hours of work they're going to get a week, not know when they're going to be at work and have their shifts cancelled at the last minute. We think there's a need for much stronger protection for those in kind of gig economy type roles. And one of the ways of achieving that is by having a single status of worker. So, employment status, which is basically, what determines what rights you get work is currently really complicated. You can be an employee where you get the full set of rights, such as they are, you can be a worker, where you get some of those or you can be self-employed. We think we need a single status, which basically means that gig economy companies can't try and pretend that people are self-employed, when they're working for one company, that company controls all of their activity, it just doesn't want to pay them a minimum wage, and it doesn't want to pay them sick pay.
MH: And I'm guessing, this poor practice undercuts good employers doesn’t it? Actually, many of them would support better conditions and rights, as its in their interests. Is that right?
KB: I mean, as you say, there is undercutting basically, and it's not just a lack of rights, but a lack of enforcement that allows them to do that. Bad employers who want to compete by exploiting their workforce are undercutting the good employers who want to treat their workers decently. I also think there's good evidence that more secure work leads to higher productivity, and certainly higher staff retention.
And I basically think there's a gap right now between what employers are saying and what they're doing. So, post pandemic, we heard a lot about valuing essential workers, about the importance of the quality of work, about recognising who our key workers really are. But when you look, for example, at the number of people on zero hours contracts, that's risen to its highest level ever. So, I think it's 1.3 million people now on zero hours contracts. So, we're kind of getting the talk, basically, but employers aren't exactly walking the walk, if that's what's happening in the real numbers.
MH: That's incredibly depressing, given, as you say, warm words not being backed up by action.
KB: Yeh, exactly
MH: Just coming back to the current industrial action, and hopefully, we've got some resolution for a lot of the public sector, but one of the things you hear a lot about which the government was saying was that higher wages just lead to an inflation spiral. And I wanted to get your take on that.
KB: Well, basically, I just think right now, that argument is nonsense. Wages are still well below the level of inflation. And we are still seeing real wages - so wages once prices have been taken into account - falling. I think it's very difficult to blame hard-pressed public-sector workers, in fact, hard pressed private sector workers, for the fact that, due to that big rise in energy prices we saw, we're still seeing prices of some essential goods rising.
I think we also need to do a lot more to investigate the role of profits. They've started doing that in some of the data from Europe, where they found that companies basically protecting their margins, so protecting how much profit they get, had had twice the contribution to inflation than workers’ wages had had over the most recent period. That was some work by the European Central Bank showing that quite clearly. I think this attempt to blame workers when they are seeing the value of their wages fall, really just doesn't make any sense.
MH: So, how optimistic do you feel about changes to pay and conditions going forward? We've got a general election coming up, so how optimistic are you?
KB: Well, I'm always optimistic. But I think, what's been giving us real hope, this year is seeing those workers who found the confidence and found their voice to take action. And, one of the most inspiring things I've heard this year is workers in that Amazon warehouse who've taken strike action for the first time, and [it was] so hard for them to get organised, to have the confidence, to join their union, to speak up and to walk out. And I think, against that huge kind of global conglomerate who was trying every trick in the book, to stop those workers having power, that is hugely inspirational for us.
Talking to workers on picket lines, from physios to rail workers, to doctors, to teachers, some, many of whom, have never taken action before. And have now just said, I just can't take it anymore. And, I've got together with people in my workplace and said, “we're going to do something about that”. I think that is hugely hopeful, I think it's shown that kind of workers can realise their collective power, and they can make a difference. Enabling that to happen is what we've got to concentrate on, if we want to see better pay and conditions for everybody.
MH: Some of this action might prompt policy makers to bring forward some of the changes that we've not seen over the recent years.
KB: Yeah, I certainly hope so. The Labour Party has set out its new deal for working people that is a strong set of commitments to improve working people's rights. But what we hope is that all politicians are going to be thinking, look, we recognise that something has got to change and that a key issue as we go into the next election, is how can we improve paying conditions for the majority of workers who've lost out for so long.
MH: Brilliant, thanks so much, Kate.
KB: Thanks for having me.
MH: Thanks for being with us throughout this series. Please like, share and subscribe on your preferred podcast platform, it really helps us to spread the word. We’re going to be taking a break over summer but join us for series three in September. And in the meantime, we have a whole back catalogue of episodes you can listen to, covering topics such as levelling up, inflation and childcare. So, thanks for listening and enjoy your summer.