Fran Heathcote: The Budget must boost pay and tackle the cost-of-living crisis

Fran Heathcote is general secretary of the Public and Commercial Services Union, the biggest British union representing government workers.

This is the cost-of-living Budget. That is the number one issue facing working class people across the country – and this Government needs to find answers.

Energy bills have risen in October and are forecast to rise sharply in January. Inflation has risen to 3.5% and is expected to rise further. Private rents are forecast to increase by 4-5% over the next year and mortgage costs look likely to go up again too.

People can see this tsunami heading towards them and they need a Government that is on their side.

So what should John Healey do on Wednesday? The first thing to do would be to boost pay. The Chancellor is directly responsible for the pay of millions of public sector workers – many of whom have suffered real terms cuts in their incomes since 2010.

You cannot deliver growth in every postcode ifworkers don’t have disposable income. Peopleare cutting back on what they spend in the shops, having a meal out in a restaurant, or a night in the pub because their pay has gone down and their costs have gone up.

PCS commissioned research that proved that increasing the pay of civil servants – especially at the lower end – more than paid for itself in the long run. It does this in three ways:

1. Firstly, a major part of any increase in public sector pay is recouped in higher tax and national insurance payments. There will also be a reduced entitlement to in-work benefits for some workers, saving the Government money.
2. Secondly, lower paid workers have a greater propensity to spend and so, if their pay increases, they spend more in their local economy – boosting local businesses. This money spent in a local community recirculates locally instead of leaking out, and this contributes to economic growth and higher tax revenues.
3. Thirdly, there’s the ratchet effect. A better pay rise in the public sector results in upward pressure in the private sector on pay, as businesses compete for workers. This results in higher tax and national insurance receipts.

The reality is that you cannot deliver a thriving economy without rising real wages. For more than a decade, workers in the public and private sectors have suffered real terms cuts in their incomes, and economic growth has been sluggish.

The academic research we have commissioned demonstrates it clearly. If you boost pay, especially low pay, you grow the economy. That economic growth brings increased tax revenues that outweigh the cost of boosting pay.

So what the Chancellor needs to set out in the Budget is a long-term policy of pay restoration to improve living standards and economic growth.

Boosting household incomes and economic growth are inextricably linked. So the Chancellor should use the Budget to set a new target of increasing disposable incomes for lower and middle earners to help strengthen economic growth, and ask the OBR to report annually on progress.

This would act as a benchmark to measure Government delivery against a far more meaningful measure of economic performance than GDP. It would also act as a guide for future policy interventions, as the OBR report could analyse the pressures on household incomes.

But income only represents one side of the ledger for households. On the other side there is the rising cost-of-living. Recent political history is strewn with the failed careers of short-lived Chancellors and Prime Ministers who didn’t get to grips with this issue.

People are fed up with politicians sitting idly by while they are being ripped by landlords jacking up rent, banks putting up mortgages, and energy and water companies hiking their bills.

When Andy Burnham was Mayor of Greater Manchester he called for a rent freeze and rent controls. Now he is Prime Minister he needs to put that into action, and make clear that profiteering from the British public must come to an end – whether that’s by banks, landlords, energy companies, water companies or supermarkets.

The post-war Churchill government in the early 1950s implemented an excess profits levy in the 1952 Budget under Rab Butler, who told the House of Commons, “we are not prepared to see excessive profits being made”, announcing “it is our intention that an Excess Profits Tax should operate from 1 January of this year”. The Conservative Chancellor declared he was “redistributing public money to those in need”.

If an Excess Profits Levy to fund redistribution was good enough for Churchill’s government, it is good enough for a Labour government today – especially one that is committed to “ending 40 years of neoliberalism” and delivering “growth in every postcode.”

If the Chancellor fails to grip this issue, millions of people face a very tough year and, less importantly, he faces joining the scrapheap of ex-Chancellors who failed to tackle the cost-of-living crisis.