The longest pay squeeze for 200 years
UK workers are currently enduring the longest pay squeeze in more than 200 years. According to a recent TUC report, workers are earning £88 a month less – in real terms – than in 2008. The severity of the inflationary spike in 2022 has created a cost-of-living crisis, which has tipped many workers across the economy into taking industrial action to try and protect their living standards.

Even this real term reduction in income is seen by many to be an undercalculation, as it uses the Consumer Price Index (CPI) as a measure of the impact of inflation on workers, rather than the Retail Price Index (RPI). While CPI is the measure most commonly used in the media to measure inflation, it covers only goods and services and does not include housing and related costs. RPI, on the other hand, includes housing costs, and is a more accurate reflection of the rise in all living costs for workers.
“Employers favour the CPI as it creates a lower base rate for inflation as an element in possible wage claims. In that respect, the CPI is a hidden tax on workers’ wages if it is used as a base for cost calculations”.
UNITE General Secretary, Sharon Graham
Unequal impact
As pointed out by the Institute for Fiscal Studies (IFS), the impact of the cost-of-living crisis is not being felt equally. Since the poorest households spend a higher proportion of their household budget on food and fuel compared to richer households, the poorest are suffering far more.

Disparities occur not only according to level of income, but also by region, with cities and towns in the North, the Midlands and Wales hit much harder than those in the South East.
In addition, as shown by BBC Newsnight’s economics editor Ben Chu, public sector pay has fared far worse than private sector pay since 2010. It is now around 5% lower, having been 6% higher 12 years ago.
This is borne out by recent TUC analysis, which finds that average pay in the city has increased by 6% a year since 2008, while health sector workers’ pay has increased by less than 2%:
“The failure of key worker pay to keep pace with inflation has left many facing huge real terms losses:
- Nurses’ have lost £42,000 in real earnings since 2008 as a result of their pay not keeping up with inflation
- Midwives’ have lost £56,00 in real earnings since 2008 as a result of their pay not keeping up with inflation
- Paramedics’ have lost £56,000 in real earnings since 2008 as a result of their pay not keeping up with inflation.”
Similar impact can be seen with teachers pay. An IFS article finds that salaries for more experienced and senior teachers have fallen by 13% in real terms since 2010, those in the middle of the salary scale have experienced cuts of 9-10% and starting salaries by 5% in real terms since 2010.
The widening wealth gap
While real wages of workers have been falling, the experience of other economic agents in society has been very different.
According to a recent report of the New Economics Foundation, the wealth of the richest 10% of households has grown, over the last decade, 574 times faster than that of the poorest 10%, an increase of £2,722bn.
According to the UK Dividend Monitor 2021’s total dividend, payments came in 46% higher than 2020, when pay-outs fell to their lowest in almost a decade during the initial wave of the Covid-19 crisis. Prior to that, dividends had, unlike real wages, consistently risen from 2009 to 2019.
According to UNITE, profit margins for Britain’s biggest listed companies (FTSE 350) in March 2022 were 73% higher than pre-pandemic levels in 2019.
As Economist Mariana Mazzucato told LBC in November 2022, inflation can be due to food and energy prices, but also to a system which allows large companies to earn excess profits through very, very large mark ups.
Protection of the banks
Following the disastrous “Truss/Kwarteng” budget of 2022, interventions were taken to protect the value of sterling and to ensure that pensions did not collapse. Interest rates went up, which in turn caused an increase in the cost of borrowing, affecting businesses and homeowners. Mortgage interest payments went up, rents went up, and the Government felt it needed to raise taxes and cut the “real” budgets of some public services.
Then, on 24 October 2022, the House of Commons, after a short debate, and with no division, agreed to make an extra payment of just over £11bn to the Bank of England’s asset purchasing arm. The money was allocated to pay increased rates of interest on the central reserves created with the Bank of England for the commercial banks as part of the “Quantitative Easing” process.
It is noteworthy that this injection of funds, close to that some have estimated would be the net cost of paying all public sector workers a cost of living pay rise, did not cause much anxiety about inflation.
Protection of the profitable
It is argued that this payment to prop up the Bank of England could have been avoided: former Bank of England deputy governor, Paul Tucker, calculated that the rise in interest rates will mean that banks will receive around £80bn from the public purse over the next two years, thus avoiding the need for the additional £11bn. Such a policy has been implemented in the Eurozone, Japan and previously in the UK.
By not propping up the banks in this way, there could have been the fiscal space of £11bn to satisfy the public sector pay claims without increasing overall public expenditure.
Furthermore, it is not as if there is any sign that the banks would be seriously affected by denial of this unexpected “windfall”. As noted on the Banker website, after taking a hit in 2020, the UK banking sector rebounded in 2021, recording a more than 200% increase in pre-tax profits. All of the UK’s “big six” banks were profitable in 2021 with Lloyds Bank reporting the largest upsurge in profits of 470.6% and NatWest moving from loss to profit, generating more profit than their French and German rivals.
Winners and losers
This all begs the question why is it deemed acceptable for some economic activity to enjoy government support and earn excess profits, while others suffer a cost-of-living crisis? Is it the case that we sometimes fail to see the people behind the economic indicators, and so accept as some form of abstract reality outcomes that are just as much a human activity as a pay dispute?
To separate out wage settlements as being “inflationary”, whilst taking no action with regards to all the other actors, is essentially to say that the buck stops with wage-earners and that it is the workers who will be expected to come out of the various concatenations as the overall losers. Bond traders, bankers, landlords, FTSE 350 companies, dividend recipients – all these can “win”. The workers, though – they must be “responsible”, and lose.
This is not to say that wage settlements can’t have an inflationary knock-on effect. Nor does it mean that wage-earners are the only economic agents to be hurt by inflation. It is to say, however, that it matters where the Government intervenes in the web of economic interactions. Interventions to protect profit at the expense of a liveable wage are a government choice that devalues workers.
So long as the “inflationary spiral” narrative is applied to only one side of the economy, this injustice is perpetuated.