13th March 2015
The TUC has warned that chancellor George Osborne’s plans will leave Britiain’s budget with a £44 billion blackhole if wages fail to increase.
In a new report, The living standards tax gap: a future risk to the public finances, the TUC sets out the damage that will be done to public finances if wages undershoot expectations during the next parliament to the same extent as they have since 2010.
It notes that improvements seen in wages over the past few months are done to record low inflation and that rates of pay growth remain far below government expectations, adding that ‘it’s higher pay settlements that deliver vital tax revenues for the Exchequer, not falling oil prices’.
The report goes on to say that economic failure by the coalition government has ‘left us with the longest fall in living standards on modern economic record’ which has been bad news for pay packets and the Treasury, with public finances £35.7 billion worse of in 2014/15.
The £35.7 billion is made up of a £22 billion shortfall in income tax, £11 billion in national insurance revenues and £2.7 billion of increased spending on in-work benefits.
The TUC warned that the chancellor ‘is in danger of making the same mistake again’ and calculates that if earnings growth undershoots the Office of Budget Responsibility’s forecast by the same amount, the annual shortfall will increase to £44 billion by 2020.
France O’Grady, TUC general secretary, said: ‘We should not be surprised if George Osborne’s plan for an even bigger round of cuts after the election stops the recovery in its tracks – after all, it’s exactly what happened last time.
‘The government’s economic plan has failed. We are ending this parliament with real wages worth £50 less a week, and the deficit still here because there’s not enough income tax and national insurance coming in. And the chancellor has had to spend billions more than he planned on in-work benefits too.’
She added that the last thing Britain needed was a ‘Groundhog Day of austerity’ with falling wages and deficit failure.
‘We need a plan for growth and a wages-led recovery. It’s time to stop paying the price of failure and to start investing and building for success with decent jobs, decent public services and a proper national investment bank,’ she said.