Boris Johnson’s capture of the north of England suggests a realignment in British politics. Key to holding that territory will be delivering on higher wages and better jobs for blue collar workers. That is why official figures showing that, on average, total pay in real terms is still 4% lower than in 2008 will be closely watched in Downing Street. The fact is that the growth in real wages post the financial crash has even been lower than the meagre growth in labour productivity. This has led to a redistribution of national income away from workers, a trend that has been evident for decades. Mr Johnson will have his work cut out to reverse this tendency.
The prime minister has two flagship policies to address the faults of the current economic model, which the Tory party unleashed on Britain in 1979, funnelling rewards from the economy away from workers. Both raising the national minimum wage and directing billions of pounds of investment into left-behind Britain ought to be welcomed. One can argue that they may not be enough or that the effect will not be felt anytime soon, but they are small steps in the right direction.
With unemployment at a record low, workers ought to expect to see rising wages. However, the rise of zero-hour contracts, casualisation and underemployment means that wage pressure is no longer driven by unemployment or the lack of it alone. There is also a painful puzzle here. As technology advances, we should see improvements in the amount of value created by each hour of work. Technology has improved but the condition of workers has not. Economically the UK is two countries – a wealthy one spanning London and the south-east and a poorer one outside it.
To raise wage growth Mr Johnson could insist that those companies bidding for government contracts pay a living wage or make it easier for trade unions to organise and bargain collectively. The former policy seems more likely than the latter. There is an international consensus that fiscal policy is a potent instrument for productivity growth through innovation. But the gains must be shared with workers fairly. There has been chronic underinvestment in R&D. The Tory pledge to spend 2.4% of the UK’s GDP on research by 2027 is a timid response, even if the cash is spent outside of the wealthy south. The public sector spent £255bn with external suppliers in 2017. Retooling this spend to drive technological change and benefit the shopfloor and the shopper must be a policy aim.
Mr Johnson will have to do more than steal Labour’s clothes. He must wear them with pride. Britain needs an industrial strategy, not least to transition to a low-carbon economy. The Treasury needs to build a culture of government activism. History suggests that economic growth is not spurred on by reducing top tax rates. The only thing that has risen is inequality – to damagingly high levels. The rich have raced away from the rest of society. This has contributed to ordinary voters feeling abandoned and has fuelled the rise of xenophobia. Brexit may have been the outcome but the reasons for the decline in working conditions, wages and public spending can be attributed to an economic policy that failed. Mr Johnson has a chance to fix it. For the country’s sake, one can only hope he takes it.
