Longer working lives and parental worries about pay rises Top of the Charts 14 July 2023 Torsten Bell Afternoon all, So… I’m all for yesterday’s public sector pay announcements for bringing to an end teacher strikes traumatic home-schooling flashbacks. But it’s worth pondering two rather less self-centred implications. First, the price of public sector workers is up but with little extra funding for these pay rises the quantity is likely heading down. Today is probably peak public sector employment (which has continued to rise after the mid-pandemic surge ). Second, the next spending review = a substance and timing nightmare. Unprotected departments were already set for a 10 per cent fall in their spending power per head between 2024-25 and 2027-28 before these pay rises. To avoid announcing those cuts a full spending review pre-election just won’t happen. But I’m worried even a mini-one (providing budgets for 2025-26) might not. In that world, whoever wins, for example, an October 2024 election will have a matter of six weeks or so to do a spending review (you can’t go much later than early December if local government/schools etc are to have budgets ahead of April 2025). And on current numbers it just doesn’t add up. Whoever wins the next election may not feel like a winner. TOTCs readers on the other hand are always winners, this week with reads on health, childcare and what the cost of living crisis is doing to us. Have a good weekend everyone, and especially the kind TOTCs readers I met at the Nuffield Foundation’s 80th Birthday bash yesterday. Torsten Rough reality. We’ve been talking about the cost of living crisis for so long now it’s hard not to almost get used to it. Leaning against that danger is new data from the ONS this morning on its impact. The headline: “around 1 in 20 (5 per cent) adults reported that in the past two weeks they had ran out of food and had been unable to afford more”. And you can make that 13 per cent among Black adults, almost one-in-ten disabled adults, and 14 per cent for renters. Despite the understandable focus on mortgages rising also note that renters are 50 per cent more likely to be struggling to pay their rent than mortgagers are to pay their mortgage. A new Citizens Advice’s report has more on the underlying problem ie a big rise in the cost of essentials (food/energy/housing) stuffs poorer households whose budgets increasingly just cannot add up. Grim times. Occupational health. Choose your job carefully – it affects your health not just your pay. So demonstrates two papers I read this week. First, the OBR Fiscal Risks Report has a great chapter digging into the rise in people not working because of ill health. What comes across painfully is the concentration of the increase (and the actual levels for that matter) among those previously in lower earning work (keenies: check-out chart 2.16). Note the increase is also concentrated among renters. It’s poorer Britain getting sicker. Retirement ranges. Paper number two reminds us that your occupation affects the age at which you retire – not just for the obvious reason of how physically demanding it is, but also because of how easy it is to keep up with changes or have flexible working arrangements in that kind of work. This isn’t news, but the value added comes from spelling out the scale of differences (average retirement ages range from 55 to 70 across different occupations in the US) and pointing out that these gaps are so big the overall composition of jobs in your economy significantly affects the average retirement age – so the type of work a country’s labour force does should affect how terrified concerned government is about an aging population. This is another reason for those nostalgically wanting loads more people to do manual labour to think twice (as well as the ‘we’d be really poor’ one). Care costs. Calls for a higher paid/better quality childcare workforce are common (some oppose Jeremy Hunt’s recent large increase in the quantity of state funded childcare because they’d spend the cash on raising quality of what’s already there). What happens when wages are increased for childcare workers? Research on the impact of Arizonian minimum wage rises on the childcare sector spell out the trade-offs. The good news for advocates of higher pay: salaries rose, jobs didn’t fall but (unsurprisingly) turnover rates did. Plus training increased. How did parents respond to what in many ways would be better childcare? Their satisfaction went down because providers responded to higher wages by raising prices. Shockingly parents traumatised by childcare costs are less keen on them rising than most wonks. Pandemic politics. The warning about difficult post-election spending reviews might get Labour politicians down, but our last read offers them better news. Researchers investigate the impact of the last pandemic – 1918’s Spanish Flu – on politics in Weimar Germany. They show that areas harder hit (mortality wise) by the pandemic leaned left, in sense of a lasting shift towards voting for left wing parties (a constituency in the 75th percentile of mortality saw an 8.1 percent increase in the vote share of the left). The authors argue this reflects health policy being more important to voters post-influenza (rather than pandemic induced economic hardship/punishment of incumbents). The effect lasted beyond the next election – in fact until the end of the Weimar republic in 1933… which brought less good news for the left. Or world Chart of the Week Read the OBR Fiscal Risks report not just for the detail on our sicker workforce, but for the clear summary of the central thing making British economic policy and politics so tough right now: rising debt interest costs for HMT. The rise is large: the surge in rates since the March Budget will raise borrowing by £13.7 billion by 2027-28 – obliterating the Chancellor’s £6.5bn fiscal headroom. And it’s arrived very quickly. If you want to know why Rishi Sunak has stopped promising tax cuts or Labour has got more cautious, this is where to look. As COTW from the OBR report shows, other countries simply haven’t seen the borrowing costs rise we’re experiencing – hence we’re whacking up taxes and they aren’t. So why are higher rates globally feeding through much quicker to UK borrowing costs? Well how much we’re charged to borrow has risen more than others, plus the amount of (and way we’ve done) QE means we pay current interest rates on a large proportion of our debt (rather than that only happening as the debt is rolled over). And a quarter of our debt is inflation-linked (twice any other G7 economy) so high inflation stuffs rather than helping us. Over time rising rates will bring these problems to other countries public finances, but for now the UK is world leading on these debt perils.