IWA ANALYSIS: Trade Unions Can Re-balance an Unequal Economy

Trade unions and collective bargaining are an important economic tool to redress power imbalances, according to Harry Thompson.

Harry Thompson takes a closer look at the current rise in industrial actions across the UK, and examines the role of trade unions.

The UK is facing a summer wave of industrial action, with the first strikes being kicked off last week by the RMT union. Trains across the UK ground to a halt as a result of a long-running dispute regarding compulsory redundancies, working conditions, and pay. 

This action by rail workers is likely to light the touch-paper of a summer of industrial unrest. The RMT action was backed by nearly 90% of those balloted on a turnout of 71%, coming above the stringent regulations the UK has with regards to strike action. Criminal barristers are now also out on strike due to complaints around legal aid funding, with defence barristers now refusing to take on new cases. Over 90% of British Airways Heathrow check-in and ground staff that are members of the GMB also voted for strike action, which they said is likely to be during the peak summer holiday period. 

This disruption to key planks of the transport and legal systems will be enough to guarantee industrial action becomes one of the key stories during the traditionally-quieter summer months of Senedd and UK Parliamentary recess. However, the industrial unrest is likely to spread further. The CWU represents 115,000 postal workers at Royal Mail, and is balloting members on strike action after rejecting the company’s 2% pay award offer. Pay will also be a key consideration for NHS staff in England, with a recommended pay offer soon to be announced – it looks likely to be around 3%. The NEU, which represents teachers, has also called for an unlikely inflation-plus pay rise due to their claim that teachers in England have suffered a real-terms pay cut of 20% in recent years due to public sector pay freezes and inflation (the 20% figure is calculated before the current high rates of inflation are taken into account).

This context is key to understanding where we are now. The UK has engaged in an extended period of fiscal restraint that has left public services stretched and with no spare capacity. This applies to the pay of many public sector workers. After a decade of pay restraint gradually eroding incomes, inflation forecast by the Bank of England to hit 11% this year is likely to significantly downgrade the living standards of many, with symptoms such as food-bank use by nurses and young academics beginning to enter the public consciousness. For those already living in poverty, the impact will be disastrous. Although the current disputes all have their own sectoral flavours, it is this perfect storm of soaring inflation, the tail-end of the austerity era, and the highest sustained tax burden as a percentage of GDP since the 1940s that is pushing many workers to breaking point. 

It is no accident that the labour share of national income began to decline along with trade union density

This near-universal experience of inflation in the UK is contributing to a febrile atmosphere. These pages have already explored the trade union revival elsewhere, and a movement that many outside of it considered to be a declining relic of the past suddenly feels like one of the most relevant stories to people in the UK, both through their action on behalf of workers and on the potent disruption that is facing the four nations of the UK this summer.

The high inflation rate explains the short-term factors, and the austerity era explains the medium-term factors. However, the impending summer of industrial unrest can also be seen as the culmination of longer-term factors, too. The labour share of national income – in simple English, the percentage of national income that goes to those who work regular jobs for a living – declined in the latter half of the 20th century and has never recovered.

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ONS records for this statistic go back as far as 1956, when 71.9% of UK national income went to labour rather than capital returns (the latter being the likes of rent and dividend income). 20 years later in 1976 that figure was still at around 70% – but 20 years on again in 1996, it had plummeted to a still-record low of 54%. It recovered to 60% in 2001 and has remained relatively static at around this level since (it is 60% today).

This statistic matters – on labour share of income the ONS says that:

‘Increases in productivity will pass through to higher labour income, and hence higher living standards, only if the labour share of income is constant or growing. If not, productivity gains could be captured by businesses as lower operating costs (lower unit labour costs), increasing business profits, and reducing the labour share of income. Productivity gains can also be passed onto consumers in the form of lower prices. To the extent that productivity is important to understand changes in living standards, the labour share of income is an important measure to verify this relationship.’ 

In other words, the world has changed dramatically since the UK’s labour share of income was 71.9% in 1956. Technological advances have reached levels only science fiction could then dream of, with automation and other leaps in technology revolutionising productivity potential. ONS figures show that output per worker in the UK has nearly tripled since 1960. But the share of national income that goes to labour has fallen, with the share that goes to capital – ie, for the attribute of having wealth – has risen. Rising living standards that could have been expected as a result of productivity increases have been eaten away by an increasingly unequal economy distributing a greater share of reward to the already-wealthy. This also has an impact on the ability to fund public services, as capital is taxed at a lower rate than labour.

It is no accident that the labour share of national income began to decline along with trade union density, with the Institute for Public Policy Research finding that trade unions and collective bargaining are an important economic counterbalance in favour of higher wages and salaries. Even the most scrupulous of employers have a strong incentive to reduce wages, whether to deliver value for the public purse or to maximise profits. Trade unions and strikes, although disruptive, offer one of the few counter-balances to this downward pressure on salaries and wages.

This should be kept in mind when assessing the desirability and impact of the strikes we have seen and are to see in the coming months. The IPPR and Mick Lynch of the RMT use different rhetorical devices, but they are making much the same argument. The latter stated that his union is willing to ‘fight for what they’ve got’ and that ‘the rest of the country suffers from the lack of power to take on employers that are continually driving down wages, and making the working class of this country poorer year on year while the rich get richer and the dividends are accelerated’.

 Many of the world’s most developed and happiest countries have the highest trade union density – it is Iceland, Denmark, Sweden, and Finland that have the highest in the OECD. These are nations with highly remunerated and educated employees and well-functioning public services, that have avoided the trend towards spiralling inequality seen in countries such as the UK.

There is a century-long animosity and distrust between the Conservatives who run the UK Government and the UK trade unions

This is not to say that strikes, and the resultant disruption, are a desirable outcome. Ultimately the vast majority of industrial disputes are resolved in some sort of mutually acceptable – if not mutually desired – outcome. Trade union density and freedom to take action can weigh the scales in these inevitable discussions back in favour of workers (and that labour share of income), but in an ideal world this is a theoretical power with deals reached prior to strike action, rather than after the fact.

Much of the industrial agitation is thus far centred upon England, with no industrial dispute between the Welsh Government and RMT members at Transport for Wales, despite knock-on effects on Wales. Industrial relations at a UK level are fractious – there is a century-long animosity and distrust between the Conservatives who run the UK Government and the UK trade unions, with elements of both organisations viewing it as part of their raison d’être to destroy the other. Responsible governance would be to work with trade unions in a pragmatic and constructive manner, with both government and unions having a shared goal of improving the pay and working conditions of workers as much as possible. 

It is with this in mind that we can turn to the context in Wales. This year will likely see the most comprehensive industrial unrest in the devolved era, at a time when the Welsh Government has passed its own piece of legislation in this area (the Trade Union (Wales) Act 2017) and is in the process of passing another (the Social Partnership and Public Procurement Bill).

During its inception devolution was envisaged as a policy laboratory, with differing policies of the constituent nations of the UK allowing a comparison of what works best. The coming focus on industrial action will certainly provide a stress-test of a number of policy frameworks, such as the contrast between the UK Government’s confrontational approach and the Welsh Government’s social partnership approach, as well as the role of Wales’ fiscal framework in determining policy.

Clearly, trade unions are far closer to the Welsh Government than they are to the UK Government. Welsh Labour is funded by the trade unions and its elected representatives are required to be trade union members. The Welsh Government also passed the Trade Union (Wales) Act 2017, which disapplied anti-union measures passed by Westminster in its Trade Union Act 2016, such as a 40% ballot threshold to be met before workers in ‘important’ public services may take industrial action. The Act also includes a provision that prohibits devolved Welsh public bodies from using agency workers to provide cover during industrial action, a measure which exists at a UK level but which the UK Government has said it wishes to repeal.

 However, as this article was being drafted, the UK Government announced that it would unilaterally legislate to remove this piece of Welsh legislation. This raises further questions about parliamentary sovereignty and the efficacy of devolution in an era with a UK Government that increasingly legislates to override policy differentiation that it dislikes in Wales and Scotland.

 The Social Partnership and Public Procurement Bill appears safe at this moment in time, although its legislative timetable will likely not allow for its passage and implementation in time for this wave of industrial action. However, the explanatory memorandum for the Bill makes clear that there are already a number of informal Social Partnership arrangements across Wales, with the Bill (amongst other measures) seeking to establish a statutory Social Partnership Council to formally promote best-practice and encourage a culture of dialogue between government, trade unions, and employers. The likely wave of industrial action we are about to see will therefore provide an interesting early test to this approach, with a clear comparison with neighbouring England available.

The UK’s economy has for a long time been unbalanced, with an increasingly broken link between increased productivity and increased living standards leading to spiralling inequality and poverty.

However, the constitution of the UK will play an important role. The UK Government announcement that it will override devolution by repealing the Trade Union (Wales) Act 2017 will reduce the practical policy difference between Wales and England, and the reservation of employment to Westminster after this Act was passed, along with the Internal Market Act, will also reduce policy differentiation in this area. But it is not just legislative frameworks that reduce differentiation. The IWA is currently examining the notion that Wales’ fiscal framework reduces the ability of the Welsh Government to act in a truly transformative manner. The UK Government’s budget, including its pay settlement with public sector workers in England, will determine the Welsh Government’s budget – and if pay rises are in the realms of 3% rather than the 11% that inflation is set to reach, the Welsh Government will be significantly constrained in its ability to act without removing funding from other areas.

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Ultimately, the UK Government’s decision to repeal the Trade Union (Wales) Act 2017 appears to be indicative of an attitude that is happier with economic policy devolution as a façade rather than as something that can fundamentally transform lives. This is disappointing not only as it reduces policy innovation and self-determination for Wales, but also because the provisions of the Act are fundamentally sensible.

The UK’s economy has for a long time been unbalanced, with an increasingly broken link between increased productivity and increased living standards leading to spiralling inequality and poverty. Trade unions represent a key counter-balance to inequality, and industrial action via the withdrawal of labour is a fundamental democratic and economic right with a positive practical purpose. The threat of industrial action such as that taken by the RMT can help to create leverage that has a positive impact on pay and working conditions for workers in all sectors, counter-balancing excess profit-seeking and a race to the bottom on working conditions that the UK has seen all-too-often over recent decades. The IWA is clear that trade unions are a positive for our society, and mature, positive relations between them and government are beneficial, so that settlements that deliver for citizens can be reached well before industrial action becomes a necessity.

Harry Thompson is Economic Policy Lead at the Institute of Welsh Affairs.

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