The calendar for January is already pock-marked with strike dates for railway workers, ambulance staff, postal workers and others. But does the current situation really deserve to be compared with the Winter of Discontent in 1979, when the rubbish piled high in Leicester Square and dead went unburied (as the gravediggers went on strike)? The answer is surely no – or at least not yet. So long as the government holds firm against wage demands, Rishi Sunak should have no fear of being humiliated as Jim Callaghan was then.
As was the case 44 years ago, the unions are engaged in a raw exercise of power. Yet they are struggling a lot more now to bring the government to the table. Their power has diminished partly because of changes to trade union law, which, for example, have outlawed flying pickets. There are now more rules for ballots which make it much harder for well-remunerated union leaders to sustain strikes when their hungry members want to return to work.
But more to the point, the economy has changed. Workforces are smaller and more dissipated than they were in 1979.Then, mineworkers or train drivers still had the power to turn out the lights in Britain: most electricity was generated from British collieries and transported to power stations by train. Now, our energy supply is more diverse. Rail unions are struggling to inflict the havoc they could even four years ago. Covid lockdowns forced employers to seek ways of working remotely; it is easy for office-based workers to slip back into working from home for a few days: many welcome the chance to do so.
The other big difference from 1979 is that, for now at least, the government, as well as private employers, have refused to budge in the face of wage demands. Sunak has stuck consistently to his line that inflation-busting wage demands will merely stoke inflation still further, as pay awards themselves push up the Consumer Prices Index. While CPI inflation for November stood at 10.7 per cent, average earnings are rising at only 6.1 per cent. Falling real wages unquestionably cause hardship, but we are in no risk of a 1970s-style wages-prices spiral.
Another change is the nature of public sector pay. A far larger amount of remuneration is in pension contributions. The average nurse, for example, is given a £50,000 package – about a third of it in pensions. Nurses may wish to change the mix, but the overall compensation is fair. We know this due to the independent pay review commission, a rigorous process which looks at wages across the sector. Few outside the NHS can expect a pension as generous as the one nurses are offered, which can be accessed from the age of 55.
If Sunak’s government can hold firm, there is every reason to expect that inflation will fall throughout 2023. The inflationary forces which took the CPI over 10 per cent, quite against the Bank of England’s expectations, are now in reverse. Wholesale gas prices are now back to below the level they were on the eve of Vladimir Putin’s invasion of Ukraine last February; crude oil prices are already substantially lower than they were then. Other commodities have followed suit. Moreover, the pound has recovered a lot of lost ground against the dollar, which has eased inflation in import prices. All this should, in time, feed through to a rapid fall in the rate of inflation.
It is not enough, though, for the government merely to reject excessive wage demands. It has failed so far to enact its 2019 manifesto promise to demand minimum service levels on the days of transport strikes. Another thing which ought to be on its agenda is to reform our dysfunctional energy market. It is ridiculous that household electricity bills are still so high (even taking into account government help) when wholesale prices have fallen.
A large part of this is down to the rules of the market, which ensure that all generators feeding into the grid at any one time are paid the same rate as the highest-cost producer. It is as if you presented five bottles of Liebfraumilch and one bottle of Chateau Lafite to a supermarket checkout and were charged the price of the Chateau Lafite for every one of them. We have ended up with enormous windfall profits for power generators and households facing eye-watering bills. Rather than tax the windfalls in order to bail out households, it would be far better to have a functioning market in the first place.
Inflation, as Ronald Reagan noted, is ‘as violent as a mugger, as frightening as an armed robber and as deadly as a hit man’. Things haven’t changed four decades on, in spite of the world having spent the past three of those decades without the scourge of rapidly-rising prices. The Bank of England has manifestly failed in its duty to control inflation – and all workers, private and public sector, are paying the price. Cleaners, shop workers, builders: all professions are seeing the real value of their salary eroded. Sunak’s government ought to hold firm and bring the cost of living under control for everyone.
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