How about a staff pay "triple lock"?

[43066]

How do you incentivise development and progress if you don't increase productivity and give people pay increases for just doing their job?

There is absolutely a place for the minimum wage to keep pace with inflation. As people progress to roles with a greater degree of management responsibility, it is right that the pay increase is all at risk.

If people progress into management roles or take on additional responsibilities they would expect an above inflation rise for doing so, of course. However we are talking here about pay for people doing the same job year on year.

Again it needs to be pointed out that an increase equal to the rate of inflation is not a real terms pay increase, and anything less than that is a real terms cut. Why should people who don’t change role accept the value of their earnings diminishing year on year? That’s not the norm given average earnings growth in the private sector.

And what about the impact on the public finances, which you are completely ignoring? Is it going to be paid for out of higher taxes or higher borrowing?

In a healthy growing economy tax receipts will increase without taxes needing to be raised. Inflation will generally also be pretty low. The “wage price spiral” nonsense from the last government was entirely political.

It’s especially laughable in the context of public sector pay rises, with many public sector workers having suffered drastic real pay cuts over the past decade. It’s a line peddled by a certain flavour of right wing politician, who dislike the public sector for ideological reasons, yet are quite happy to propose equally inflationary tax cuts for higher earners, and of course the triple lock and winter fuel allowance paid to multimillionaire pensioners with no means testing…

 

[Trainbike46]

There is a ratchet effect. It is very easy for inflation to increase, and very difficult and painful to bring it down again.

And what about the impact on the public finances, which you are completely ignoring? Is it going to be paid for out of higher taxes or higher borrowing? If taxes are increased, what impact does that have on the private sector of the economy? If borrowing is increased, what impact does that have on interest rates, and the interest costs on the existing government debt?

Tax take does tend to increase every year as well, even in absence of policy - for example, the absolute amount raised through income tax goes up as people's pay increases, including throuigh policies like this. Similarly, the amount raised through VAT goes up with inflation because the price of the items VAT is added to tends to go up on average. Therefore, the impact on public finances shouldn't be an issue.

This is of course separate of my view that the richest people in society aren't taxed enough in the UK (or many other countries), so that taxes should increase

== Doublepost prevention - post automatically merged: 11 Sep 2024 ==

In a healthy growing economy tax receipts will increase without taxes needing to be raised. Inflation will generally also be pretty low. The “wage price spiral” nonsense from the last government was entirely political.

It was quite obviously nonsense from the last government, because any claim of a wage-price spiral fell apart on the lightest bit of scrutiny:
- For starters, inflation went up a lot before anyone's pay started going up
- Pay rises were quite consistenly below inflation even after that
- the initial trigger was clearly due to Lizz Truss's terrible policies reducing the value of the pound, making all imports more expensive (as well as the impact on interest rates
- Many companies' profit margins increased as a percentage of turnover, suggesting they were rising prices more than their costs increases - suggesting further inflation was in fact more driven by a 'profit-price spiral' than by wages that increased less than inflation

 

[Meerkat]

It’s just much easier to set wages by the market - what you need to pay to get and keep the requisite skills
I also don’t understand National pay bargaining (except for unions internal reasons) - even if you were giving inflation pay rises the cost of living changes at differnet rates around the country, particularly for housing etc.
(and it would do my nut if I was a Blackburn driver and only getting the same pay rise as Blackpool…..)

 

[Magdalia]

In a healthy growing economy tax receipts will increase without taxes needing to be raised. Inflation will generally also be pretty low.

But the UK is not a healthy growing economy, and hasn't been for 15 years.

In recent years the UK has not had low inflation either.

Therefore, the impact on public finances shouldn't be an issue.

The elephant in the room is government debt, and the cost of servicing it.

The UK now has government debt of about 100% of annual GDP. At an interest rate of 2%, then about 2% of GDP goes on servicing the debt. If the interest rate changes to 4%, then about 4% of GDP goes on servicing the debt.

But public expenditure is only about 40% of GDP. At a 2% interest rate, about 5% of government expenditure goes on debt interest. At a 4% interest rate, about 10% of government expenditure goes on debt interest.

So the debt servicing costs can move completely out of line with general inflation and tax receipts. That's why the impact on the public finances is an issue.

Lots of good things that are affordable when the economy is growing, and inflation is low, are not affordable now because of this.

Get back to high growth and low inflation, and all sorts of things are possible, but the high growth and low inflation have to come first.

 

[Trainbike46]

The elephant in the room is government debt, and the cost of servicing it.

The UK now has government debt of about 100% of annual GDP. At an interest rate of 2%, then about 2% of GDP goes on servicing the debt. If the interest rate changes to 4%, then about 4% of GDP goes on servicing the debt.

But public expenditure is only about 40% of GDP. At a 2% interest rate, about 5% of government expenditure goes on debt interest. At a 4% interest rate, about 10% of government expenditure goes on debt interest.

The amount of government money that is effectively wasted on servicing debt is a separate issue - and this feels remarkably like you're trying to shift the goalposts.

 

[43066]

It’s just much easier to set wages by the market - what you need to pay to get and keep the requisite skills
I also don’t understand National pay bargaining (except for unions internal reasons) - even if you were giving inflation pay rises the cost of living changes at differnet rates around the country, particularly for housing etc.
(and it would do my nut if I was a Blackburn driver and only getting the same pay rise as Blackpool…..)

The pay market for train drivers is complex and base pay ranges from circa. £50k (track machines) to £95k (Eurostar). There isn’t a one size fits all, so saying “just leave it to the market” doesn’t really work in this case. As for requisite skills, lots of railway roles don’t have direct comparators. LU T-ops are on circa. £70k which actually puts them ahead of most train drivers, despite a shorter training course…

“National pay bargaining” hasn’t existed for train drivers for decades, and ASLEF have been asking for local negotiations throughout the recent dispute. However the current government (probably understandably) insisted on a national offer to settle. Regional differences are just the way it goes, as in many industries. Never mind Blackburn versus Blackpool, try being a London driver getting the same increase as a Derby one. London weighting is a whole three grand.

But the UK is not a healthy growing economy, and hasn't been for 15 years.

In recent years the UK has not had low inflation either.

But we were talking generally, rather than about the last few years.

However what you say is certainly true yet, despite the poor outlook, the last government were still promising tax cuts and continuing the triple lock etc., while simultaneously complaining that public sector rises were stoking inflation. That strikes me as having it both ways.

Many groups of workers (including ASLEF members, assuming the deal is accepted) will also have taken a below inflation rise in recognition of the economic situation.

 

[Magdalia]

The amount of government money that is effectively wasted on servicing debt is a separate issue - and this feels remarkably like you're trying to shift the goalposts.

"money that is effectively wasted"? It is a contractual obligation made when the debt was first issued. The consequences of not paying it really are very grim.

== Doublepost prevention - post automatically merged: 12 Sep 2024 ==

But we were talking generally, rather than about the last few years.

My definition of few doesn't go up to 15! No growth in the UK is now deeply embedded. Getting back to healthy growth isn't going to be easy.

 

[JonathanH]

However what you say is certainly true yet, despite the poor outlook, the last government were still promising tax cuts and continuing the triple lock etc., while simultaneously complaining that public sector rises were stoking inflation. That strikes me as having it both ways.

The last government was setting a trap for the current one - no two ways about it - in full knowledge that the current government would have to make decisions that would make them unpopular.

The public don't seem to acknowledge the parlous state this country is in, and that it can't afford the standard of living people have come to expect from years of living beyond its means and building up more and more debt.

 

[Meerkat]

The pay market for train drivers is complex and base pay ranges from circa. £50k (track machines) to £95k (Eurostar). There isn’t a one size fits all, so saying “just leave it to the market” doesn’t really work in this case.

I don’t understand - the complexity is a reason to leave it to the market rather than try to work out a’fair’ rate. Where the drivers want to work will set the wage comparisons.
Of course then the debate is whether you risk internal conflict by giving new starters higher wages (but new starters are then more affordable) or raise the whole cohorts wages.

 

[Trainbike46]

"money that is effectively wasted"? It is a contractual obligation made when the debt was first issued. The consequences of not paying it really are very grim.

Sorry I should have been clearer, I did not mean to suggest the UK government shouldn't fulfill it's contractual obligations, it clearly should fulfill it's contractual obligations. What I meant is that spending 10% of the government budget (or any other amount) basically because Lizz Truss was an idiot, and wouldn't have the OBR do some economic modelling before implementing a ridiculously large tax cut, is a waste of resources.

However, I maintain my position that this is very much off-topic, and a separate issue (though I agree with you that it is a serious one).

== Doublepost prevention - post automatically merged: 12 Sep 2024 ==


My definition of few doesn't go up to 15! No growth in the UK is now deeply embedded. Getting back to healthy growth isn't going to be easy.

Which is why I'd have preferred it if the governing party had some kind of plan for how to get the economy growing, instead of what they're currently doing, which appears to be to just hope that by being not the tories the economy will magically start growing again. Now of course, the last 14 years of Tory government have made quite clear that they do not have the interest of either the people living in the UK or the economy at heart, so it is a clear improvement that they were voted out.

 

[43066]

I don’t understand - the complexity is a reason to leave it to the market rather than try to work out a’fair’ rate. Where the drivers want to work will set the wage comparisons.
Of course then the debate is whether you risk internal conflict by giving new starters higher wages (but new starters are then more affordable) or raise the whole cohorts wages.

And that’s largely what’s happened over the last few decades. Large wage increases have largely been due the union at certain TOCs selling Ts and Cs, so to an extent as a qualified driver you could choose to work for Avanti on more money than Northern (say), but for poorer Ts and Cs.

I expect it will continue as it is for the foreseeable future, as achieving parity of pay and Ts and Cs will be virtually impossible. There aren’t going to be higher wages for new starters due to collective bargaining, however you might get new starters with Sundays inside (which has been agreed in the past).

 

[Magdalia]

Which is why I'd have preferred it if the governing party had some kind of plan for how to get the economy growing, instead of what they're currently doing, which appears to be to just hope that by being not the tories the economy will magically start growing again.

That's not my impression. For a start, settling some key public sector pay disputes, the winter fuel allowance change, and some planning decisions on solar power are all early indications of a different approach. There was lots in the King's Speech, and in the next few weeks flesh will be put on those bones when draft legislation is laid before parliament. The budget on 30 October will also be a significant signal of a change in direction.

What I meant is that spending 10% of the government budget (or any other amount) basically because Lizz Truss was an idiot, and wouldn't have the OBR do some economic modelling before implementing a ridiculously large tax cut, is a waste of resources.

But a track record "being not the tories" will hopefully help on those interest rates on government bonds, which brings me back to where I came in!

 

[WAO]

It's fine to index incomes against domestic inflation; the problem is when there's world inflation such as in energy and food prices. These can be moderated a little by domestic production but everyone, rich and poor has to accept that they then have less purchasing power including train drivers and doctors. If they don't then they can have more £'s but they'll buy less!

Free markets in wages are dubious as a strong union can force wages up by blocking alternative, free recruitment and training; equally employers can (and do) operate rings where they agree not to overbid each other, or where there is effectively a dominant employer such as in the NHS or education.

The key in my view is housing stress which has rightly forced wage demands up. We have a population of near 70M in a land fit for c55M

 

[43066]

The last government was setting a trap for the current one - no two ways about it - in full knowledge that the current government would have to make decisions that would make them unpopular.

The public don't seem to acknowledge the parlous state this country is in, and that it can't afford the standard of living people have come to expect from years of living beyond its means and building up more and more debt.

Agreed. It was okay to do that while there was strong growth, and real incomes were rising, of course, but that has largely stopped since 2008. The question is how to deal with that.

 

[Helvellyn]

The other elephant in the room is public sector pensions, including for the TOCs (I know NR is different in a number of areas), where final salary (or defined benefit) schemes still exist. Versus the defined contribution schemes many private companies have the fact you've got a guaranteed income when you retire is not to be sniffed at, and in many cases in TOCs the retirement age is below that when the state pension kicks in. In many ways a final salary pension is deferred income, but it's very hard to get people to see that as something that has real value.

Jacob Rees-Mogg actually made a sensible suggestion when Business Secretary - allow public sector workers to opt out of defined benefit pension schemes (very expensive) and into defined contribution ones. The trade off would be above average pay rises - they could then decide whether to have all that money now or to invest some of it into their defined contribution pension scheme as extra contributions. If people didn't want to opt out they wouldn't be forced to.

We're actually fortunate in TOCs where we have a funded defined benefit pension scheme. The Civil Service one, which is very generous, is just funded out of actual taxation because their is no fund behind the scheme! Governments of all colours have been taking that money as "income" for decades, just like they have with National Insurance, etc.

 

[yorksrob]

Jacob Rees-Mogg actually made a sensible suggestion when Business Secretary - allow public sector workers to opt out of defined benefit pension schemes (very expensive) and into defined contribution ones. The trade off would be above average pay rises - they could then decide whether to have all that money now or to invest some of it into their defined contribution pension scheme as extra contributions. If people didn't want to opt out they wouldn't be forced to.

That's an interesting suggestion. However, given public sector pay has been below average for many years, it would have to be a significant uplift to entice people off of a decent pension. Moving from final to average salary (if they haven't already) might be more realistic.

Not all public sector pensions are "unfunded" of course. Some have pension funds.

 

[Meerkat]

And that’s largely what’s happened over the last few decades. Large wage increases have largely been due the union at certain TOCs selling Ts and Cs, so to an extent as a qualified driver you could choose to work for Avanti on more money than Northern (say), but for poorer Ts and Cs.

I expect it will continue as it is for the foreseeable future, as achieving parity of pay and Ts and Cs will be virtually impossible. There aren’t going to be higher wages for new starters due to collective bargaining, however you might get new starters with Sundays inside (which has been agreed in the past).

But union power stops it working efficiently - every change has to be argued about and bought.

 

[yorksrob]

It's fine to index incomes against domestic inflation; the problem is when there's world inflation such as in energy and food prices. These can be moderated a little by domestic production but everyone, rich and poor has to accept that they then have less purchasing power including train drivers and doctors. If they don't then they can have more £'s but they'll buy less!

That's why the country needs to become less dependant on imports full stop. And that must include the practice of gifting natural resources such as gas to multinationals so that they can inflate prices on the international markets and sell the resource back to us, which is as good as an import.

 

[JamesT]

That's an interesting suggestion. However, given public sector pay has been below average for many years, it would have to be a significant uplift to entice people off of a decent pension. Moving from final to average salary (if they haven't already) might be more realistic.

Figure 3 on https://ifs.org.uk/publications/recent-trends-public-sector-pay shows average public sector pay has been higher than the private sector for most of this century. It’s only in the last couple of years the private sector has overtaken. (Presumably due to the effect of inflation on salaries controlled by the public sector pay freeze)

I believe most of the public sector pensions switched to Career Average in 2015, though they managed to do this in a way that fell foul of an age discrimination lawsuit. It’s still leaves a very large liability on the government books that has to be paid eventually.

Not all public sector pensions are "unfunded" of course. Some have pension funds.

A few do, the Local Government Pension Scheme is a notable example of actually being funded. But the majority aren’t.

 

[Harpo]

But union power stops it working efficiently - every change has to be argued about and bought.

Changes get ‘bought’ when the only thing you have to sell as an employee is your labour. The existence of such a huge range of T&Cs suggests businesses got what they needed from each of them?

Alternatively, zero hours contract jobs, minimum wage warehouses etc. are available for those preferring negligible or zero protection through T&Cs.

 

[43066]

The other elephant in the room is public sector pensions, including for the TOCs (I know NR is different in a number of areas), where final salary (or defined benefit) schemes still exist. Versus the defined contribution schemes many private companies have the fact you've got a guaranteed income when you retire is not to be sniffed at, and in many cases in TOCs the retirement age is below that when the state pension kicks in. In many ways a final salary pension is deferred income, but it's very hard to get people to see that as something that has real value.

Jacob Rees-Mogg actually made a sensible suggestion when Business Secretary - allow public sector workers to opt out of defined benefit pension schemes (very expensive) and into defined contribution ones. The trade off would be above average pay rises - they could then decide whether to have all that money now or to invest some of it into their defined contribution pension scheme as extra contributions. If people didn't want to opt out they wouldn't be forced to.

We're actually fortunate in TOCs where we have a funded defined benefit pension scheme. The Civil Service one, which is very generous, is just funded out of actual taxation because their is no fund behind the scheme! Governments of all colours have been taking that money as "income" for decades, just like they have with National Insurance, etc.

The railway pension is largely in surplus AIUI. The discussions around changing it are generally ideological along the “I don’t get it, neither should you” lines. (Didn't the government force a review of the TfL pension as a condition of one of the funding bailouts and find it to be in good health?). Nothing has been said about the national rail side, even during the last dispute, which suggests it wasn’t a high priority.

But union power stops it working efficiently - every change has to be argued about and bought.

Not really less efficient - the changes are argued about negotiated between existing employers and employees via the union, and those who move between companies take on the prevailing conditions at the new employer, the same as any other employment market. The difference is that, within each company, the employee side has some genuine say in setting and altering Ts and Cs, and the power to prevent arbitrary changes when it suits the employer.

It also prevents employees having to individually negotiate their own pay, and people doing the same job at the same organisation ending up on a wide range of salaries, as can happen at other private sector organisations. That’s another distortion of “the market”, just one that often goes in the employer’s favour.

 

[Magdalia]

Figure 3 on https://ifs.org.uk/publications/recent-trends-public-sector-pay shows average public sector pay has been higher than the private sector for most of this century.

People already in retirement started their working careers well before the end of the last century.

Back then, as a young graduate, I earned significantly less than my peers in the private sector.

Public sector pay, relative to the private sector, only improved considerably in the years of the Blair/Brown government.

The railway pension is largely in surplus AIUI.

Railway employees are very fortunate, the railway pension fund has a long history of astute investment.

Back in the 1970s it was famous for hedging against high inflation by investing in fine art.

Right now it has huge land and property investments in and around Cambridge.

 

[JamesT]

People already in retirement started their working careers well before the end of the last century.

Back then, as a young graduate, I earned significantly less than my peers in the private sector.

Public sector pay, relative to the private sector, only improved considerably in the years of the Blair/Brown government.

The question has been around offering a cheaper pension in return for higher upfront pay. Which is relevant to current workers, not those in retirement.
I was correcting the misapprehension that public sector workers are on 'below average' pay.

 

[Egg Centric]

All triple locks are clearly mathematically unsustainable. I don't see why we'd want more - would be better to remove the pensioner one instead. It'll have to be eventually.

You can acheive something that is triple lock like with a simple adjustment - instead of choosing the largest gain every year, you run three series (i.e. one goes up by RPI, one by wages, one by 3.5% or whatever the triple lock is) and pick the highest of those series each year.

Now that's a viable solution for the pension triple lock. But I wouldn't be accepting that if I were staff. Why would I want my salary indexed to what it was a decade ago?

So I don't think this works.

 

[Tetchytyke]

shows average public sector pay has been higher than the private sector for most of this century

The IFS have used the mean average to assert this, not the median average, which is an interesting choice on their part.

The mean average will, naturally, be distorted towards showing that the public sector pay is higher than in the private sector. The lowest paid public sector staff- cleaners, security guards, catering staff- were outsourced away into the private sector a very very long time ago. That has the obvious distortion of both increasing the public sector mean average and decreasing the private sector mean average.

What's really interesting is how that, despite this significant and obvious distortion, the mean average private sector pay still now outstrips the mean average public sector pay. That goes to show just how bad public sector pay has become.

 

[Meerkat]

Not really less efficient - the changes are argued about negotiated between existing employers and employees via the union, and those who move between companies take on the prevailing conditions at the new employer, the same as any other employment market. The difference is that, within each company, the employee side has some genuine say in setting and altering Ts and Cs, and the power to prevent arbitrary changes when it suits the employer.

It means it’s hard for T&Cs to keep up with technology, and leaves the railway outdated and expensive.

It also prevents employees having to individually negotiate their own pay, and people doing the same job at the same organisation ending up on a wide range of salaries, as can happen at other private sector organisations. That’s another distortion of “the market”, just one that often goes in the employer’s favour.

Why is that a distortion. It’s a good thing for the decent employees.

 

[JonathanH]

What's really interesting is how that, despite this significant and obvious distortion, the mean average private sector pay still now outstrips the mean average public sector pay. That goes to show just how bad public sector pay has become.

How is that assessment normalised for the job roles that people do, and their level of responsibility or accountability?

Within the private sector, a lawyer working 'in-house' is likely to earn less than one at a 'city law firm', but doesn't have anything like the same pressure to earn fees. They both contribute to the private sector average. A lawyer working in house in the public sector may be paid comparably with the same role in the private sector, but the average for all lawyers in the public sector will be less.

 

[JamesT]

How is that assessment normalised for the job roles that people do, and their level of responsibility or accountability?

Within the private sector, a lawyer working 'in-house' is likely to earn less than one at a 'city law firm', but doesn't have anything like the same pressure to earn fees. They both contribute to the private sector average. A lawyer working in house in the public sector may be paid comparably with the same role in the private sector, but the average for all lawyers in the public sector will be less.

The graph says the source is the ONS EARN02 dataset of non-seasonally adjusted average earnings by sector.
https://www.ons.gov.uk/employmentan.../datasets/averageweeklyearningsbysectorearn02 has the Excel sheet with the data, which includes introduction and definition sheets that explain some of the reasoning behind the figures.

 

[43066]

Railway employees are very fortunate, the railway pension fund has a long history of astute investment.

Thanks, that was my understanding, and interesting to hear something of the history. Yet it doesn’t stop certain people calling for it to be made worse!

It means it’s hard for T&Cs to keep up with technology, and leaves the railway outdated and expensive.

Completely false, Ts and Cs can be updated, it just needs to be paid for and negotiated rather than imposed. It sounds as though your view of an “efficient” and “modern” labour market just means one in which employees have no say and are paid as little as possible. Sounds rather like the last government’s view!

Why is that a distortion. It’s a good thing for the decent employees

Not necessarily, it’s much more about ability to negotiate than anything else. Employers often give the smallest rise than can get away with, irrespective of how good the employee is. In some markets (including the one for train crew) there’s also little to tell a decent employee from a mediocre one, so “performance related pay” doesn’t really work as a concept.

 

[Egg Centric]

Why is that a distortion. It’s a good thing for the decent employees.

Some jobs are better suited to collective bargaining than others. A decent software engineer or financial trader can be worth 100x a crap one. But this doesn't apply to most railway grades. Someone who meets the minimum standards for being a train driver is not going to be that different to the best possible train driver. So individual negotiation, given than most people aren't that good at it and there being a big gap in power between employer and employee is very much not in the employee's interest, even the best ones!