Britain Deserves a Pay Rise – Here’s how we can make it happen

The Fabian Society’s Raising the Bar pamphlet seeks to understand why this has happened, and what policymakers can do to get household incomes rising again. The Raising the Bar launch event in April gave Fabian members a chance to hear more and ask questions of contributors including Annaliese Dodds MP, the political economists Prof Ozlem Onaran and Craig Berry, and John Mills (entrepreneur and Labour Party activist).


Mark Whittaker, chair of the Finance Network wrote up the event for our blog.

From the Second World War until the 2007 Financial Crash, the average incomes of working-age households tended to reliably increase by 2 per cent per year or more. In Britain, we came to expect that every child would grow up to be materially better off than their parents.

Since the Financial Crash, however, this British Dream has stalled. Household incomes are scarcely higher than they were 10 years ago, whilst prices of household goods have continued to inflate and the national housing crisis has meant that home ownership is beyond the reach for too many people under the age of 40.The Bank of England and Office for Budget Responsibility now accept this gloomy state of affairs in their forecasts and economic models.

The Fabian Society’s Raising the Bar pamphlet seeks to understand why this has happened, and what policymakers can do to get household incomes rising again. The Raising the Bar launch event in April gave Fabian members a chance to hear more and ask questions of contributors including Annaliese Dodds MP, the political economists Prof Ozlem Onaran and Craig Berry, and John Mills (entrepreneur and Labour Party activist).

Their explanation of the problem revolves around four connected issues: a tax system that hits the poorest hardest; the shift of income from labour to capital; the relative decline of Britain’s manufacturing sectors; and the over-concentration of productivity and economic growth in a few cities, not in the many towns and rural areas that are struggling economically across Britain.

We do not tend to think of Britain’s tax regime as regressive, because popular debate focuses overwhelmingly on Income Tax, which is charged at a higher rate for wealthy individuals and is not payable on incomes under £11,850 per year. Yet Annaliese Dodds dismantled the idea that ‘the wealthiest currently shoulder the greatest burden’, using ONS data to show that the poorest tenth of people pay 42% of their income in tax, compared with 34% for the wealthiest tenth. This is because poorer households are hit harder by Council Tax, Employee National Insurance Contributions, Duties, and VAT (which was increased from 15% to 20% in 2011, pushing up everyday prices). Meanwhile, more progressive taxes have been eroded through tax dodging, reliefs and re-banding. Prof Onaran also focused on distribution of income, showing that labour’s share of national income has declined since the mid-1970s, from 74% to 69%, whilst capital’s share has increased. This has led to rises in inequality, as ownership of capital is unequally distributed across generations and socio-economic classes, and is taxed differently to wage income.

John Mills produced a very focused argument on Britain’s manufacturing sector, whose share of GDP has fallen from 30% in the mid-1970s to 10% today. He argued that this has fuelled a stark regional productivity imbalance, and a large trade deficit which persists in spite of the excellence of many of Britain’s service industries. He estimated that we need to boost Britain’s more export-driven manufacturing sector to at least 15% of GDP in order to create sustainable economic growth. He also pointed out the unsustainable nature of economic growth based on house price inflation and credit-fuelled consumption, and urged a movement towards more investment in the productive economy - particularly in R&D, technological innovation in manufacturing, and energy generation and storage. He argued that neither the Right’s obsession with tax cuts and deregulation, nor the Left’s focus on direct state support and skills training, are the routes to achieving a step-change in Britain’s manufacturing output.

So, how do we restore the British Dream, and get household incomes growing again for the many? The speakers’ recommendations included:


  •         Make Britain’s tax system fairer and more progressive. This includes cutting regressive taxes, or replacing them with more progressive alternatives. Labour is committed to putting the top rate of Income Tax back up to 50%, but it needs to introduce deeper reforms and anti-evasion measures as well. For practical proposals, I recommend looking into London Assembly Labour Group’s idea of replacing Council Tax and Business Rates (which hit poorer households and small businesses hardest) with a Land Value Tax on landownership – it’s an intriguing idea, with potential for support across the political spectrum. The same goes for the recommendations of the IPPR Commission for Economic Justice’s Tapering Over the Tax report.
  •         End austerity, which has held down the incomes of millions of public sector workers, and reduced public investment into stimulating economic growth.
  •         Restore worker collectivism by giving trade unions greater access to workplaces, allowing electronic union balloting that works for 21st Century workers, and including workers on corporate boards.
  •         Devalue the Pound to make British exports more competitive, to stimulate manufacturers and improve our balance of trade. In my opinion, there are reasons to be cautious about this recommendation, as this would push up the cost of imports and lead to price rises over the short-term. If this policy is to be pursued further, it should be implemented alongside the tax reforms discussed above, including a cut in VAT. And whilst British manufacturers appear to have benefitted from the devaluation of the Pound following the 2016 Referendum result, this will only hold if Britain secures access to markets for our exports overseas after the Brexit transition ends on 1 January 2021.
  •         Move quickly to make Britain a world-leader in green technology. British renewable energy production has surged recently, and we have some world-leading manufacturing and research companies in this field. Green energy is delivering economic growth and high-quality jobs in places that sorely need them, as well as combatting climate change. I would add that the sector has been buffeted by uncertainty due to poor policy decisions including unexpected cuts to subsidies and an uncertain, often unfriendly, planning regime. It needs stronger champions in Government.
  •         Set up regional development banks and use procurement to boost local wages and businesses. Regional development banks, which would have to invest exclusively within their region, have proven to be a successful model in Germany. I agree that British policymakers at every level should learn from this, and examine the evidence from the local wealth building experiments of Preston City Council. This outstandingly creative Labour and Co-operative council has used public procurement by local anchor institutions to bring much-needed investment growth to the town, and as a tool to support Lancashire-based businesses that provide their workers with decent pay and conditions.

At the Young Fabian Economy & Finance Network, we are organising a series of events to explore these challenges further. At each event, you will have a chance to hear more about these issues, and to share your own ideas with influential decision-makers.

  • The first, focusing on tax justice, will be held on Tuesday 12 June. It will feature Margaret Hodge MP and other expert campaigners.
  • The second, Making a Better Economy, will be held on Thursday 19 June. Through discussion with leading voices from industry and the Labour Party, we will explore how policymakers can promote Britain’s manufacturing sector and create a better environment for small businesses.
  • We are also planning an event in Manchester to talk about how to develop an economy that works better for every region, and for towns and rural areas as well as cities.

We will release more information shortly via our Facebook page and email list.

Mark Whittaker is Chair of the Young Fabian Economy & Finance Network.

To hear more about the Network’s events and projects, Like their new Facebook page at


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