In the six long years since the financial crisis began, the business world has been at pains to re-establish its credentials with society.
When the banks broke, so too did something in the minds of the men and women on the street. Capitalism was working for the few, not the many. The model needed reinventing.
Ever since then, the virtuous circle has been emphasised by business leaders seeking to regain the public’s trust. Witness how private sector investment creates jobs and pays for training that leads to greater profits, dividends for shareholders and a higher quality of life.
Yet something has been missing. After a slow start, Britain’s recovery has been striking, to the extent that our economy is on track to grow this year faster than that of any other major nation. But the benefits of growth are yet to be felt by the same workers who cut pay or hours in a show of loyalty when times were tough.
The intervention today by John Cridland, director-general of the Confederation of British Industry, comes not a moment too soon. In calling on his members to deliver a vital pay rise for staff, he recognises the missing piece of the jigsaw: a pay rise that outstrips inflation.
Businesses have reasons aplenty why it has taken so long. Pay follows productivity follows investment, so the supply chain theory goes. Yet the wait has stretched credibility. Adjusted for inflation, wages have fallen by around a tenth since the start of the crisis. As the Bank of England Governor, Mark Carney, has explained, there is a hope that this painful revaluation is a base from which the economy can grow strongly and competitively again. But however effective that trade-off of lower wages for higher employment turns out to be, it has not been of the workforce’s choosing.
That everyone is in it together has been difficult to reconcile, with research that suggests Britain’s top bosses have seen their pay increase by a fifth in the past year. The recent report from Incomes Data Services said the rise was driven by a 44 per cent increase in long-term incentives.
Meanwhile, a pay rise has taken on a political imperative. On current forecasts, wage growth may not outstrip inflation before the general election, which takes place six months today. It is troubling for the Coalition, and the Conservatives in particular, that their austerity drive – criticised by esteemed bodies including the International Monetary Fund, who later admitted they got it wrong – may not impact on voters’ pockets before they troop to the ballot box.
Just as we have enjoyed the wrong kind of economic recovery – buoyed once again by soaring property and consumer spending – there is too much of the wrong kind of work about: fewer hours, lower skills, self-employment. Begrudgingly, it must be viewed as a start.
In addition, the gloomy wage data conceals pockets of good news. Many skilled workers in fields such as project management, IT and compliance have enjoyed above-average pay rises. Especially in the South-east, there has been a sharp drop in the number of painters and decorators, electricians and plumbers claiming jobseeker’s allowance. But the headline statistics are dragged down by a change in the workforce mix brought about by a decline in managerial jobs and more lower-paid roles filled by young people.
Simply having a job is not reason enough to celebrate. Nor will it breed a feel-good factor that can sweep David Cameron back into Downing Street next May. But businesses rarely act for political reasons. Their self-interest is reflected squarely in the bottom line. And here is the bottom line: a better pay deal for loyal workers is the only way for businesses to re-establish their social contract.Reuse content