...a blog by Richard Flowers

Wednesday, January 09, 2008

Day 2561: Mr Frown, the Bettabuys Prime Monster


Well, that is what he told Mr Andy Marmite:

"We can do Bettabuys Police; and we can do Bettabuys Nurses!"

"What about the Army?"

"We can do Bettabuys soldiers too!"

It's about the people working in our public services. Typically, the Prime Monster is trying to cut corners as he cuts costs, by nipping off to the made-up, lo-cost supermarket from Consternation Street!

Of course, he was BUTTERING them up with JAM tomorrow because he was also telling them that they weren't getting any jam TODAY.

Or in fact TOMORROW either under Mr Frown's new Three Year Plan plan.

Chancellor Sooty has been doing the colouring in on Mr Frown's new plan to fix public services pay rises in advance, and HE was on the The Today Programme trying to sell this as "a good thing".

Sooty's justification was that people will get: "certainty as to what the pay increase will be, not just this year, but next year and the year after".

But the thing is that fixing people's salaries like this actually increases their UN-certainty. You see, as it stands, people are ONLY uncertain about how inflation will affect the DIFFERENCE between prices and their salaries.

Costs can vary quite a bit – look at the large jumps in train fares and energy costs already this month. And on top of that there is the surge in mortgage and loan interest because of the Credit Crunch. (Which is why for most people, the relevant inflation rate is the RPI that INCLUDES interest rates, rather than the CPI, the one that Mr Frown quotes all the time, that does not.)

But they will ALSO have a pay rise which will, probably, reflect the inflation at the time. So even if prices are unexpectedly higher, there's a good chance that wages will be unexpectedly higher too.

In effect, the uncertainty about your salary CANCELS OUT some of the uncertainty about prices.

So if you FIX the salary rises in advance, then you are actually MORE uncertain, because unexpected changes in what things cost you will not be compensated for.

This is obviously similar to the problems facing people like pensioners who are on a fixed income (though of course THEY know that they will get a fixed increase of 0% each year for the next three years).

Or you could compare it to fixing your mortgage costs with a fixed rate loan.

You MIGHT think about taking out a fixed rate mortgage for a few years – but you know that that is a GAMBLE: you COULD save money if interest rates go up, but you will lose if they stay the same or go down, but then you might also think that the certainty about the payments is worth the risk of losing a bit of money on the interest. The thing is, it is YOUR gamble to take.

Here, Mr Frown is the one who is gambling – he bets that he can keep inflation DOWN – but he is expecting the public service employees to put their salaries on "32 Red" for him.

Or, to put it another way, over the last couple of years, inflation got a bit (a little bit) out of Mr Frown's preferred band. How happy would YOU be, taking him at his word that he has gotten inflation back under control and isn't going to lose it again?

Let us have a quick look at the NUMBERS.

Three years ago, January 2005, the Retail Price Index is 188.9 (compare with 2004: 183.1) and inflation is about 3.2%.

Mr Frown – who was Chancellor then (as he still is, now) – might offer you a, let us say, generous-seeming 3.3% pay rise every year for three years. (Generous when you bear in mind that TODAY he is currently only giving up a 1.9% rise for anyone he is responsible for paying.)

However, by November 2007 (the latest month for which the Office of National Statistics have figures) the RPI has increased to 209.7. That is an increase of about 14.5% in (nearly) three years, equivalent to about 4.7-and-a-half% a year each year.

As you can see, Mr Frown's hypothetical offer of 3.3% would have left you substantially worse off.

And that's just picking the figures for three years ago TODAY.

(Because it's not like Mr Frown has a record of picking the inflation figures from their lowest point in the year to base his GENEROSITY upon – ask any pensioner who got the INFAMOUS 75p rise! Ooh, look: it's Sooty!)

I may just be being a very fluffy elephant, but I am not certain that MY certainty is improved by the prospect of being a part of our Glorious Leader's plan to triple tractor production. Is yours?

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