David Cameron has been urging firms to increase worker's wages in light of the drop in oil price.
This year we’re going to have a General Election and that basically means all sorts of promises and suggestions will be made to the (likely not unsuspecting) public. Such as the recent one from the Prime Minister, who told us in the last few days that companies benefitting from a drop in the oil price should pass the profits on to workers. It’s one way the Conservatives are attempting to rebuff criticism from Labour over falling living standards since 2010 as prices on most things has gone up while pay packets for most people stayed the same or worse – went down.
The Conservative leader’s idea is based on figures released by the Office of National Statistics which suggest the profitability of British companies has risen to a 16-year high, and it’s being attributed to the fall in oil prices. They have suffered a sharp decline since July – plummeting headfirst from $114 a barrel to under $50. Mr Cameron told an audience in Washington, “Obviously I want to see that companies’ success is passed through in terms of people seeing wage increases. It has to be done in a way that is affordable, in a way that companies can continue to grow. We need to see productivity grow.”
And yes, the idea was received in the exact way you think. Sir Roger Carr the former owner of British Gas said it made little economic sense. “What happens when the price of oil goes up? You can’t have pay linked to commodity fluctuations.” Reporting from the World Economic Forum in the Swiss ski resort of Davos, Sky News quotes anonymous business leaders as agreeing with that assessment, with one allegedly going so far as to accuse the Prime Minister of “pandering to the looming election with crazy economic ideas.”
The Conservatives are conscious they need to take on the Labour party’s cost of living issue. It’s at the heart of Ed Miliband’s campaign, which states that it will take years for the current ‘crisis’ to be resolved, as a result of years of poor economic growth and increasing inflation. But Downing Street is confident that will lose impact – if oil prices remain weak, even low wage increases will outperform inflation. Already we’re seeing lower prices on everything from petrol to food – however there’s no saying how long that will continue for. It all depends on the price of oil.
Of course, not everyone is benefitting. You’ll remember we only just discussed the impact on oil companies – more accurately the impact on the oil company workers – of a drop in oil prices. Hundreds of workers have been made redundant recently from BP, ConocoPhillips and Schlumberger among others. And for some of those still with work, there’s immediate wage freezes or a cut in rates due to a more competitive market and fewer positions.
Last year the Chancellor was being urged to do more to help the industry. George Osbourne cut the supplementary tax energy companies pay – from 32% to30% – but there were immediate calls for him to do more, perhaps even remove it completely. A few days ago he promised to introduce further tax cuts in the upcoming budget.
To a cynical ear, one might argue Mr Cameron and the Conservatives are playing both sides at once – appeal to the hundreds of thousands of people who work in the North Sea oil and gas industry by promising to do everything they can to alleviate the pain being felt; while at the same time appeal to the rest of the workforce who are suffering little or no pay increases by suggesting their bosses pass on money being made in the good time of low oil prices. It’s not possible to do both in the long term. Who will take priority?.