Do governments have to “balance the books” – and why is it always workers who pay the price? Professor Gregor Gall debunks the spin.
At times of economic and political crisis, governments often erode and undermine – in other words, attack - public sector workers and their terms and conditions of employment. This might be on their pay, pensions, job security or working hours.
At first sight, this seems counter-intuitive and somewhat irrational. Why would a party in government do this when it needs the votes of these workers and their families to get re-elected?
But there are obvious goals being pursued here. One is economic - to get more work out of the workforce for less money. The other is political - to be seen by the electorate as “fiscally responsible”.
WHOSE INTEREST?
The starting point to understanding all this is the notion of the ‘national interest’. All governments, whether Labour, Lib-Dem, SNP or Tory, have always subscribed to the so-called ‘national interest’.
But the language used by these parties - of ‘we’, ‘our’ and ‘the country’ - is a cunning sleight of hand.
This becomes clear when we hear the phrases ‘our nation cannot afford’ and ‘the country cannot afford’ or ‘we haven’t got the money’.
The rich and powerful in society use this framing mechanism to allow them to maintain their own interests while making it look like they are thinking of us, the majority.
FALSE ECONOMY
Margaret Thatcher did it by comparing the nation’s finances to a family’s household budget in an interview with the Murdoch-owned News of the World on 5 January 1984. She said you cannot spend more money than you have coming in.
David Cameron said the ‘nation’s credit card was maxed out’ as he launched his ‘We’re all in it together’ austerity assault in 2010.
In echoes of Thatcher, we now have Keir Starmer implementing their fiscal rules, defined in Labour’s manifesto for the 2024 general election as meaning that the ‘current budget must move into balance, so that day-to-day costs are met by revenues and debt must be falling’.
Trying to be an ‘iron chancellor’, Rachel Reeves has said these rules are ‘iron-clad’.
PROTECTING PROFITS
Behind this rhetoric of “fiscal responsibility” are ideological motives. It is an attempt to reassure shareholders, investors, The City and the international money markets. This is about protecting the conditions for profit-making.
When we drill down a bit, we find out this ideology is made up of three main components.
The first is the idea that pay rises cause inflation. The second is that the so-called ‘national debt’ – which is government debt – is all our responsibility. The third is that public sector pay rises have no positive part to play in the economy.
Let’s look at these in turn.
MYTH #1 : PAY RISES ARE THE CAUSE OF INFLATION
Inflation is simply defined as when demand for goods and services is greater than supply, leading to prices rising. So, pay rises aren’t causing inflation: they prevent wages from decreasing in spending power. If supply is short, then that’s a problem of inadequate production of goods and services. Or it’s because businesses raise prices in order to raise profits – known as ‘greedflation’.
MYTH #2 : THE GOVT HAS TO CUT SERVICES
Government debt rises when governments borrow money because the money collected in taxes is lower than expenditure. Decisions about funding verses cuts are always political. For instance, Labour has recently pledged to increase defence spending while threatening to cut benefits for disabled people – but most people want welfare, not warfare.
Just as importantly, government debt can be used to stimulate the economy by spending it on public works like schools, hospitals and other infrastructure, creating jobs- especially in construction. Debt is not necessarily bad.
MYTH #3 : WORKERS’ PAY RISES ARE BAD FOR THE ECONOMY
Contrary to the mainstream myth, when public sector workers get pay rises, they spend them far more on items that boost demand for domestically produced goods than the rich do when they receive tax cuts.
Spending on food - and not fast cars as the tabloids like to say - is a simple illustration of this. So, the multiplier effect of what public sector workers do with their wages is much better for providing the basis for better paid jobs for others elsewhere in the economy.
As Labour MP John McDonnell said in 2015 when shadow chancellor: ‘Austerity is not an economic necessity, it's a political choice’. It is a choice that benefits the few at the expense of the many, under the guise of being for the benefit of the nation.
Gregor Gall is a visiting professor of industrial relations at the University of Leeds
