The politics of pay day

By Vincent Carroll-Battaglino

At tomorrow’s Budget, Chancellor Rishi Sunak is expected to introduce a 6.6% increase to the minimum wage (rising to £9.50/hr for over 23s). Among the raft of other pre-briefed announcements is the end of the public sector pay freeze, imposed by the government when the chips were down during the pandemic and private sector wages were falling as the furlough scheme continued.

The government is likely to push these payday announcements as the key positives for voters. With Sunak set to say that “nurses, teachers and all the other public sector workers who played their part during the pandemic” can now see wages rise because the economy is “firmly back on track”, the basic pay message will be twinned with an emphasis on an “improving outlook” and “economic competency”.

In truth, this is relatively predictable and not so much of a free choice politically. The minimum wage announcement exactly mirrors the Low Pay Commission’s recommendation. The messaging over the end of the public sector pay freeze necessitates an “all in it together in the good times too” reversal if private sector pay is rising. But creeping inflation threatens to eat into wage packets in for both private and public sector workers, setting up a potential cost of living crunch just as we emerge from the pandemic.

The narrative Sunak is set to push looks likely to follow closely the messages deployed following the 2010 election by his predecessor, George Osborne. That involves an emphasis on the tough early decisions needed, with a common theme of being “all in it together” during the difficult times, followed by shared benefits from an improving economy, with the government hoping to claim the credit for an improving economy and boost its popularity through any pre-election giveaways that the Chancellor is able to find the money to fund. But with increases to National Insurance planned from next April, and the threat of inflation and interest rate rises, the risk remains that the message fails to land this time around. A stronger than expected recovery will indeed help the government. But with inflation looming – projected to hit five percent in the early part of next year and with the prospect of a rise in interest rates, we could soon find out just how much of the economy – both in the private and public sector - relies on the low interest rates both have benefited from in recent years.