I was pleased to see that Rishi Sunak has decided to press for better training in mathematical skills. Because he seems to be having a lot of trouble grasping the basics of the subject. He needs some guidance.
Lesson one for the Sunak cabinet starts with the realities of life for most ordinary households. It is like this Rishi. Wages or benefits come in. Rents, mortgage payments, council tax, food and heating costs flow out. If the second half of the equation is larger than the first half, then you are in trouble and if the former goes up slower than the latter, you are not the cause of inflation but the victim.
The simple sum he needs to get his colleagues to do is to look at the figure by which real wages are rising in the public sector and then take away the rate at which prices are rising in the shops. This requires the ability to subtract a 10.5% rise in prices in the shops from a rise in public sector incomes of 3.3%. In case his cabinet is struggling to do that, they need to know that they are asking teachers, doctors, nurses, train drivers and the like to cope with a 7.2% pay cut.
Lesson two is that the cost of buying or renting a home is ultimately driven by how much must be borrowed multiplied by the rate of interest. To borrow £200,000 at a rate of interest of 2% results in a bill of £4,000 in a year or £333 a month. If a daft Conservative government crashes the economy so badly that interest rates have to be hiked to 4% and more, then mathematics tell us that there is real pain for real people. The cost of borrowing that money goes up to £666 a month.
A newly qualified midwife starts on £27,055 and that will generate an after-tax monthly income of £1,729.51. Losing an extra £333 of after-tax income represents a further 19% reduction in income. A result of crazy decisions taken by a Conservative government only a few short weeks back.
When it comes to addition, the lesson for this government is equally simple. Be careful about which things you choose to add to the equation. Deciding to try and subsidise the energy costs of the poorest in society comes at a price but is an understandable expenditure at a time of temporary price rises. Deciding to extend that support to every single home in the country massively increases the cost and results in taxpayers subsidising the wealthiest in society more than the poorest.
People who are shivering at home because they have turned off the heat are actually consuming very little power and receiving almost no help from the government. Anyone who owns a large mansion, or, like many members of the cabinet, several large mansions will receive a very hefty subsidy indeed. In other words, a bit of basic mathematics ought to have told Rishi Sunak that he was taking money from low income working people in taxes and giving it to the rich in subsidies. The Sheriff of Nottingham would have been impressed.
Maths also tells us that most of us lack the ability to spend the same money twice. It is a bit like cake. You can’t actually have it and eat it. However often a silly former prime minister tries to convince you that you can. The money wasted on subsidising the wealthiest consumers is entirely adequate to fund a reasonable pay rise for nurses. If that money has been frittered away, then it ain’t train drivers who are to blame.
Rate of change
If Rishi is ready to move on to a slightly more sophisticated piece of mathematics, then he might like to start thinking about rates of change and direction of change. Here the best way to think about the problem is again a very practical example.
If wholesale gas prices rise rapidly and retail gas prices go up quickly but then wholesale gas prices fall yet the retail price stays the same, then what is the result of that equation? The answer is, of course, massive profits for oil and gas companies and retailers of petrol. Accompanied by weeks and months of extra pressure on the finances of every ordinary household in the country, every school, every hospital and almost every business.
In such circumstances the role of a good government is to step in and to control the markets via effective windfall taxes and price controls. The role of a government obsessed by extreme free market economics is to step aside and let people suffer for a lot longer than they need to.
Time was one of the first applications of mathematics with the use of the 60 minutes in an hour and 24 hours in a day stretching back to the Babylonians. So timing is also something ministers need to consider carefully. Ask a nurse to let an out of date pay review to determine this year’s pay rise and you are asking them to accept a dramatic reduction in their wages because inflation has spiked. Ask them to wait until next year’s pay review on the promise that the government might get around to rewarding them properly at a later date and you are asking them to be very naïve indeed. Why would any nurse trust nice promises from this government as opposed to a real hard deal?
All of which means that this government has demonstrated very little grasp of basic mathematical realities as ordinary people experience them. Either they will learn their lesson quickly and bring an end to these strikes or they are going to wreck the NHS. I leave readers to calculate which they think is more likely.