We all want these
MPs are being asked, so are police officers, so are prison officers. Across the public sector workers are being urged to accept modest pay settlements, but would you take an effective pay cut because society needs you to?
By Finlo Rohrer
BBC News Magazine
Gordon Brown wants you to do something.
He'd be really happy if you would accept a pay rise of, say, 2%. With the Consumer Price Index - one of the key measures of inflation - standing at 2.1% that would be a small real pay decrease. If you take the Retail Price Index measure of 4% it is a big cut.
Would you take a pay cut to help keep inflation down?
Don't know 7.60%
Results are indicative and may not reflect public opinion
And if that's really too much of a privation for you, could you certainly keep it under 2.5%? It would really help the economy at a time when things are not looking too rosy. Anything over that really would be rather imprudent.
Mr Brown's not the first prime minister to urge pay restraint, particularly among public sector workers, to provide a brake on inflation. High prices for oil, food and other commodities are among the main drivers of inflation, but public sector salaries are one of the few parts of the economy that Brown can have a direct effect on.
If there are big pay settlements across the whole of the UK workforce then it might contribute to inflation, and as we all know, too much inflation is bad.
In one newspaper last month, Gordon Brown was said to have described MPs who desired an above-inflation pay rise as "selfish". That kind of emotive language is hard to square with the image of the prime minister, but there is no doubt that many of the protagonists in the current rows over pay take the matter personally.
WHAT IS 'MONEY ILLUSION'?
Where a worker on £10,000 a year getting a £1,000 pay rise at a time of 11% inflation feels less hard done by than...
...a worker who gets no pay rise at a time when there is negligible inflation
MPs should be setting an example, Brown thinks, to encourage the rest of the public sector to accept their 2% or thereabouts without trying to force the government's hand with protests and strikes.
For some there may even be a moral as well as a practical argument. Could you accept a pay cut or a low pay rise for the greater good? And should you?
According to Parantap Basu, professor of economics at Durham University, we are not very good at accepting a reduction in the figure we earn, even if we are not losing out in real terms.
"People won't accept a wage cut of 10% even if prices go down 10% and so you have the same purchasing power. Workers attach more importance to nominal wage not real wage," Basu says.
We want an increase in the numbers, whatever the circumstances. A drop in our nominal salary accompanied by a rise in our real salary, say at a time of heavy deflation, makes us unhappy. Economists call this "money illusion".
Consumer Price Index: 2.1%
Retail Price Index: 4%
RPIX: 3.1% (RPI excluding mortgage interest)
Different measures of prices of goods and services
And where workers do accept a drop or a minimal rise in their nominal wage, there tends to be a simple trade-off. Some time ago tanker drivers at the British Oxygen Company were told that they needed to work longer hours for no extra money so the company could fight off competition.
The change helped and within two years the drivers had negotiated a 20% pay rise. It shows people are quite capable of accepting short-term privation for medium-term gain.
A moral case?
But the situation for public sector workers is more complicated. There will be no chance of a big payday in the medium term. Besides, many workers in the private sector will be getting pay rises markedly above inflation.
Those who get plump rises would then benefit from inflation being under control while at the same time enjoying their rises. Those who accept restraint will have helped others who are not contributing.
Economists think of people as rational agents pursuing maximum utility
So is there a moral case? Are those who accept pay restraint making a contribution to society, discharging an obligation?
Philosopher Julian Baggini says he has every sympathy for those who are pressing for higher wages, but suggests that restraint is really all about practical considerations rather than our duty to our fellow man.
"In the long run it is to their benefit if the economic argument is right. If inflation is stoked their money will be worth less. The burden isn't being spread evenly, but the burden is never being spread evenly
"People don't protest if their wealth increases at a faster rate than anyone else's. They only complain when it's they who have to suffer."
Roger Crisp, a fellow of Oxford Uehiro Centre for Practical Ethics, says it's possible to make a case that the appeal for pay restraint is an appeal to our moral sense.
150's your limit
"There is a difference between asking people to make some sacrifice and saying we are going to impose some sacrifice on you. It is entirely reasonable to ask for it. It is entirely reasonable to say no."
And if we don't acknowledge that there is a moral element to accepting lower pay, it may be because we have problems with the scale on which we are being asked to act. Gordon Brown's appeal is for individuals within the public sector to see sense, on the basis their claims will affect the entire British population.
Anthropologists say we can comprehend the need to co-operate on a small-scale; understanding the need to work with a family or a team to achieve a common goal. But can we inspire co-operation in a society of 60 million?
Prof Robin Dunbar, director of Oxford University's Institute of Cognitive and Evolutionary Anthropology, thinks it isn't easy.
"The group sizes that are our natural environment are extremely small - the limit is about 150 people. This 150 seems to set the limit on the number of people you can know as persons, you know how they fit into your social group and how you fit into theirs.
"It is defined really in terms of those people to whom you owe obligations and from whom you can expect obligation. The people you expect not to cheat you."
Thus it is very hard for us to do something for a group of 60 million people, all of whom are making different levels of sacrifice and enjoying different levels of reward.
"To create what you are having to do is to create almost a fiction that really all these other people are part of the group of 150. It's possible but it requires some kind of grand project, by creating a sense of community," says Prof Dunbar.
The police say they have had a real terms pay cut
But the good news is that the assumptions of economists is not that we will all do our bit for the collective good.
Instead many assume that we as individuals are rational agents attempting to maximise our utility - the amount of happiness we can gain from material things - in the prevailing economic climate.
On our own we can do nothing to affect the broader sweep of the economy.
"Even if you understand your actions' effects on inflation you cannot influence others actions," says Prof Basu. Person A might demand an above-inflation pay increase, while person B meekly accepts a pay cut.
Even with larger groups, such as unions, they may act in different ways, often cancelling each other out.
But while there may be some who prefer to think of Brown's appeal in terms of pure take-it-or-leave-it pragmatism, there will always be some who equate it with a question of duty.
Below is a selection of your comments:
I would gladly accept a pay rise of 2% providing it was 2% of the MP's wages and not 2% of mine.
Colin, Isle Of Wight
Public sector wages DON'T contribute to inflation in any direct way. Public sector wages always react to inflation retrospectively. The irritating thing in the "public vs. private" wage argument is that apparent increases in headline average salaries in the public sector are mainly caused by middle and senior managers and specialists having to be recruited from the private sector, and having to be offered private sector salaries to attract them. The cost of this then comes out of the paybill for the rank-and-file. And then, to add insult to injury, often these managers are no more competent than the public sector ones they replace.
Robert Day, Coventry, UK
It seems we are running a duel economy, with those in the public sector, still being shielded from the harsh realities of the 'global market'. I have an engineering degree and postgraduate degree, I have no savings, no pension, I have not had a pay rise for six years, and I know that there are others like me. The public services should wake up. We are all not facing in the same economic direction.
Its easy for Brown to say there should be restraint, when he earns over £100,000.
Those professors you mention above and the MPs can probably afford to accept a minimal or zero percent increase. The majority of us however, will need that increase to pay the higher cost of the fuel, the food and the council taxes that are being imposed on us month after month.
It is about time inflation was measured using real commodities. Gordon Browns argument is flawed - he wants us to accept minimum increase to help their description of inflation - but it is the real inflation that drives our need for real rises.
There is nothing new in this - very time the government feels inflationary pressure the pleas go out for "restraint" - under MacMillan, under Wilson, under Heath - same issue, same cure. it's particularly obscene given the lack of restraint in pay in the top quartile, and the conspicuous lack of any redistributive policies from the "Labour" government. the objective is to shaft the PAYE sector at all costs.
I'd be much happier if you focussed on the con game that is going on with the use of indices here. For most of my life the RPI was the accepted index for inflation. The decision to move to the CPI hides the fact that real cost of living (shown by the RPI) is accelerating MUCH more rapidly than pay for over 50% of the population.
Geoff Cathcart, Farnborough
There is no mention in the above discussion of productivity gains, which is another factor in the equation. If you are living in a country which is enjoying growth, ie its GNP is increasing, which is the case in the UK, and inflation is low, then you still might reasonably expect a pay rise because the growth must be fuelled by increased productivity. If you are not sharing in the benefits of increased productivity, then all those benefits are being funnelled into profits and only management and shareholders are benefiting, which is unreasonable.
John Marsh, Fairfax, Virginia, USA
Yes, I'd be happy to forego a pay rise and why not? Unless you're on the poverty line then what's the problem? The fuss some people make over a few quid is utterly beyond me - small-minded, selfish little homo-sapiens. Wake up people - there are much more important things in life than money.
James, Bristol, UK
Reading this makes me feel really proud to work for a company that only gives an inflationary pay rise, once every four years on average. At least the company I work for, is doing its part in trying to hold back inflation. It's so refreshing to think I'm effectively taking a pay cut each year, when all the hard working civil servants are only receiving a miserable inflationary pay rise. Did I mention the pension they get or the above average, annual leave allowance? The poor things, they are so hard done by. But who am I to complain, as I read the headlines of council tax rising by a mere 4% while I take yet another annual inflationary pay cut, service bills are only going up by about 10 to 15%, I'm sure my annual inflationary pay cut will cover them !
Clive Carter, Plymouth
Following the Agenda for Change pay system introduced into the NHS, I already AM taking a pay cut for the greater good.
I can see the fiscal arguments for this, but for a low paid teacher/nurse/policeman to accept a small increase to then see lawyers, bankers and property developers boasting of huge bonuses must be galling. Maybe the government should tax private sector pay increases above inflation at a higher rate to pay for a decent living wage for public servants.
I work in the private sector and me and my senior colleagues & directors suffered a business disaster a few years back due to market conditions. We all took a 40% pay cut for the company to survive and we are still well below contracted salaries by about 25% - and working 50 hour weeks. Pensions are shot to hell, family life has taken a pounding - and no we are not on high salaries. Public sector workers are "safe" whereas private company workers take far more risks in the main.
The problem is that it is always the same people who fall on their swords for the benefit of the others. How about private industry taking a hit on their bonuses and perks so that the public sector can have a breath of air for a change? I'm working in the public sector and for many people this time around, it is meaning a serious impact on the core parts of life, food, heating and a roof over the head ... it has become that serious.
The government can force the public sector in ways which they can't force the private sector. We are always the easy targets. No more, Mr Brown. No more.
Michelle Knight, Haywards Heath, UK
Oh, please! Welcome to the real world. In the private sector, many of us have been receiving small increases or none at all for the last several years, while watching public sector groups striking until they receive comparatively huge increases. Now the boot's on the other foot - and that's just life. If you don't like it, leave, and get a job somewhere else, like the rest of us have to.
Maria, Farnborough, UK
With council tax expected to rise between 4% and 6% in most UK counties, do you really believe that we will swallow the idea that accepting a pay award below the rate of inflation is fair, moral and for the greater good? Perhaps parliament should be paying more attention to the out-of-control spending by local government (whilst, I may note, our social amenities and service standards steadily decline) in order to seek to curtail inflation.
Disposable income in Cardiff is down to an average of 3%, with over 90% of salary being consumed by cost of living and taxation. You do the math!
Steve Swann, Cardiff, Wales
I think it needs to be clarified that in general, Public Sector workers have not had pay increases equal or even slightly above inflation for many years. I worked in the Public Sector between 1986 & 1999, the last time I recall having an inflation equalling or higher increase must have been around 1993.
Paul Melvin, Fife, Scotland
I am a public sector worker, and as such am one of the people having to take a real term pay cut. It is getting to the stage where it is uneconomical for me to continue to work. I have no spare cash after all my basic bills are paid. My electricity has just gone up 15%, petrol is rising continually, my carparking has gone up 3%, my childcare has gone up by 5%, food costs are going up too. All this on a wage rise of 2% - the ends are ceasing to meet.
I work for a medium sized engineering/manufacturing company that has had a difficult time over the last three years. As such we have been taking below inflation pay rises each year. In late 2006 the workforce was more than halved and through-out 2007 we have produced more with less staff than ever before and this year we feel the need for a little payback from the company. Our Union representative is suggesting we target a 5% pay deal.
This makes little difference to me as I earn £14.000 pa pre-tax and have a young family so I receive tax credits which increase my annual income to around £24.000. Any pay rise I get will be offset by the reduction in tax credit but I feel the firm owes us more as a sign of appreciation and they have a moral obligation to reduce my burden on the state.
Richard Kay, Leigh
No mention here of the huge, life changing pay cuts that many hardworking local government staff are facing in order to fund Single Status Equal Pay increases for low paid workers. It's a case of robbing the poor to pay the poorer. Local authorities have known about this for at least six years but little provision has been made to fund inevitable higher salaries of traditionally low paid eg care workers, cleaners.
Maid Marion, Bassetlaw, Nottinghamshire
I am a local government officer and my dispute is that the government keeps breaking its word. I joined the public sector from the private for two reasons - job security and the pension scheme. My job is no longer secure, possibly less secure than the private sector. But it is my pension that upset me post. I thought I had a contract and did not realise that the government can just change the law and effectively tear up the agreement.
Duncan Warmington, Maidstone
If the government wants us to accept a below inflation pay rise, then they should equally 'ask' all essential service providers, such as food, gas, petrol, electricity, water etc to stick to below inflation rises in the cost of their services too. After all, why do all companies demand ever rising profits, no matter what the economy is doing? Why isn't any 'profit', even a very marginal one good enough in lean years? Free markets only work for non-essential services..
I'll take a pay cut for the greater good sure.... when all the politicians, hereditary peers, and royals lead the way by also taking a cut in their income that's big enough for them to notice, relinquishing their free loading lifestyles, put their children in state school and get in line with the rest of the working population waiting for NHS treatment.
Philip Hill, Bristol, England
I've not received a pay rise of any kind for over 4 years, in real terms I now earn around 20% less than I did 4 years ago, am I doing something about it, yes, looking for a new job.
The public sector wouldn't mind taking effective pay cuts if the arguments to support them were sound. Mr Brown stated that inflation had run at 16% over the last decade but police officers had a 39% increase. What he didn't say was that this was in line with a median based on non-manual workers in the private sector. This had been negotiated in recognition that police officers had no rights to take industrial action and had massive restrictions on their private lives.
If Gordon Brown were to continue his policy of paying what he felt was appropriate policing will no longer be seen as a long term career. Experience will be lost and the ability of the police to properly respond to their rapidly increasing workload effectively will be lost.
Peter Thomassen-Clarke, Alresford England
I wonder how much the inflation rate is relevant as everyone will have seen their utility, fuel and council tax bills go up substantially. These large rises must reduce disposable income. But the reaction to the inflationary pressure is to increase the interest (mortgage) rate restricting further. Can we hope to keep up or actually does fuel, power and heating now cost more and so we must accept this?
Nick Phillips, Plymouth
I anticipate with relish the obvious next step, for central government to cap council tax rises at 2%. With such a constraint on public sector spending I'm sure inflation would remain under control.
The issue, in my opinion, isn't inflation but in the private industries - profitability. If an employer is running a profit as a result of his employees productivity then it seems reasonable to expect to share in that.
Peter Douglas, Billericay, Essex
I am an IT engineer employed by a contract agency with offices worldwide and haven't had a pay rise in approx the last 10 years. So those being offered 2%+ should stop moaning and get on with it.
It is stupid to give everyone an across the board percentage wage rise. Those on lower wages will need a higher rise and those on higher salary less of a rise. Why should the poorer paid keep subsidising the better paid year in year out. In general terms pay £1,000 to a worker on £15,000 and £500 to a worker on £50,000.
Robin Bate, Edinburgh, Scotland
Any chancellor worth their salt would know it's relatively easy to claw back any pay rise via taxation. It wouldn't surprise me if tax goes up whilst government spending goes down.
Darren Weekes, London
Working within the public sector and having already accepted a modest pay increment settlement, why should I further erode my position? Call my argument simplistic, but surely shouldn't the government be looking to the private sector volunteering for this pay-rise cap? (This would of course only be applied to incomes above a certain income threshold).
Harry A Barnett, Norfolk
Brown might well want all of us to take a pay cut- but so long as the rest of us in the private sector are subsidising lavish pension funds for public sector workers- at a rate of £2 for every £1 we invest in our own- the onus is most definitely not on us to pay the price of measures to mitigate inflation.
Brown is now having to realise the price of excessive borrowing during the golden economic upturn he was bequeathed by his Treasury predecessors.
James, Blackpool, UK
This is not the issue. The public are being duped into believing its their wages that can affect inflation. Tosh. There's a much greater problem with the way business is financed and governments are run. Take a wage cut so that the city can keep making obscene profits? No way. Time for a change in corporate law for the benefit of all and not just for the grossly rich.
At the beginning of 2007 I was given a 2.5% annual pay rise - nice. Then at the end of March I was told that myself and colleagues would have to accept a 10% pay cut or risk losing our jobs. It wasn't really an option, but that's life in the private sector. Needless to say I am waiting for the right opportunity to come along so that I can get my career back on track.
Council tax = Up
Rail fares = Up
Petrol prices = Outrageous!
Energy prices = Up
Housing costs = See "Petrol Prices"
Personally, given the contempt that the Prime Minister has shown us by hiking taxes, I'm glad I'm not alone in thinking he can go and take a running jump.
I work for an international company in the private sector and no-one has had a pay rise for at least 5 years. It is a great mis-conception that the private sector are better off with pay rises that the public sector. In fact, the public sector have the influence by weight of numbers, unions, sympathy and publicity. Where will my pay rise come form to meet the rising costs of everything?
Mrs M Davis, Walsall