Pay and the public service

Sir, – For those concerned about our public services, how we can improve them, and ensure they are a key driver in people’s life quality, David McWilliams’s article will be a disappointment (Opinion, January 27th). He claims that public sector workers’ wages have risen more than three times faster than inflation since 2016. Over the last two years, private and public sector workers have actually suffered real (after inflation) pay cuts of between 7 per cent and 9 per cent respectively. Even when we look at the trend over the last seven years, workers’ real wages – private and public – have increased only marginally on an annual basis. To get to his “three times faster than inflation” claim, he conflates pay and employment; what is called “aggregate” wages. This doesn’t measure workers’ pay packets. This failure to distinguish between the two introduces unnecessary and avoidable confusion.

In fact, the exchequer pay bill as a proportion of national income (GNI*) has been falling. In 2013, it stood at 11 per cent of GNI*. By last year it had fallen to 8 per cent. Equally concerning is his assertion that workers’ wages are leading to higher inflation, the alleged “wage-price spiral”. This oft-repeated orthodoxy ignores more recent findings.

The Central Bank found the main source of domestically produced inflation during the height of the cost-of-living crisis was not wage growth, but the significant increase in profits.

The IMF undertook a seminal analysis of 79 inflationary periods going back to the 1960s and found almost no evidence of wages driving inflation. We need a real-world analysis of the drivers of inflation, not flawed theories like wage-price spirals. – Yours, etc,