Gordon Brown thinks you can knock inflation on the head by giving hairshirt pay awards to millions of public sector workers. You can already see the proof of this over the last year or two, he claimed at yesterday’s monthly press conference.

Not everyone agrees. Including Andrew Oswald, the economics professor from Warwick University, who penned a waspish letter to the FT this morning. "An undergraduate who wrote in an essay that inflation was caused by public sector wage rises would receive a ‘fail’," he said. "Inflation is caused by the economy running too hot." The point being that most people work in the private sector, where wages are rising north of 4 per cent a year.

Union leaders failed to toe the party line yesterday when Brown insisted that more workers should sign up to three-year pay deals at today’s low inflation rate - around 2 per cent. Unsurprisingly they argued that that it would be foolish to give up future bargaining power without a "premium".

Things are likely to hot up later this year as unions articulate their unhappiness in a string of interesting pay demands. Among them is Unison, which wants a 6 per cent rise this year for its 840,000 local government workers. And then there is the GMB - with 250,000 local government workers - which is poised to demand up to 7 per cent as well as an extra two days’ annual leave, improvements to car mileage payments, an increase in the night shift allowance, an increase in the "sleep-allowance"…..and an unlimited curry and beer allowance for all members.

I’m joking about the last one. But you get the point.

These demands are surely set to be crushed. Yet the clash between the unions and the government over pay could shape up into a major theme of 2008 with the likelihood of several strikes. Unison’s local government workers came within inches of industrial action last autumn - voting in favour by 52 per cent - before backing down. This time they may not buckle so easily.

January 9th, 2008 in Uncategorised | Permalink