Public sector pay rises can be successful example of 'filter-out economics': Mark Costello

However, with above inflation pay rises for public sector workers announced by Labour, it’s really got me thinking about the state of the economy and discretionary spending.

We all know how high inflation was over the last couple of years and this coupled with the rise in interest rates has caused a real squeeze with households, leading to a decrease in discretionary spending.

Albeit this is anecdotal, but I speak with a large number of businesses in the Leeds area on a regular basis, ranging from super-small up to national brands and the constant theme is attracting people isn’t a concern, but how much people are spending is.

People just don’t have as much cash to spend as they once did.

One example I can speak about is our taproom - we can literally be full but the amount we take is down by 30 to 50 per cent.

Again it’s anecdotal, but when I’ve asked our customers about it, the general theme is people are having to watch what they spend.

Obviously there’s also health benefits to cutting down alcohol intake (and despite my job I always encourage people who are considering this to do so - I’m a firm believer in quality over quantity), but the overriding reason is financial.

So let’s go back to “filter-out economics” and why it can make a difference.

If multi-millionaires and billionaires get tax breaks, that’s not going to filter down into the general economy and never has.

However, if you give a nurse or junior doctor a good pay rise that will likely be a genuine life-improving moment for them.

It could mean they can make those home improvements they’ve been wanting to do, get that new car, go to that restaurant they’ve seen on Instagram, and so on.

If the biggest employer in the UK (the NHS) gives a pay rise to a larger proportion of its staff, that’s a sudden influx of cash that can hit the real economy - the plumbers, salespeople, hospitality staff, etc - and get the economy moving again.

It should be noted that this does of course pose the risk of inflation increasing again but it’s unlikely to hit the heights it did - they were due to the extreme circumstances of post-Covid and Russia’s invasion of Ukraine rather than there being too much money in the economy.

There’s debate as to whether the increase in interest rates were the actual reason inflation came back down but that is a topic for another time.

However the risk of higher inflation is worth the reward of greasing the wheels of the economy and getting the country moving again.

As for ‘filter-out economics’, I have tried to find out if this term is already in use but haven’t found an example. But this does not mean it does not exist!

Mark Costello is founder and owner of Horsforth Brewery