In the long run, the higher levels of both employer and employee National Insurance contributions will result in lower growth of real take home pay - that is simply the price of better public services. Real incomes need not fall but, for a short time simply grow more slowly than otherwise. Indeed, if productivity growth rose, then real wages growth need not fall at all. Profits may bear some of the brunt in the short run, but over the longer term the adjustment will be to wages because firms will need to earn the going rate of return on new investment. It remains to be seen whether the additional National Insurance contributions will lead to attempts by firms to push up prices to recoup the higher employers' contributions and by employees to push up wages to offset their higher contributions. The commitment of the MPC to keeping inflation on track to meet the target, and its track record since 1997, should help to anchor expectations of inflation to 2.5%, thus encouraging the adjustment to occur without a rise in inflation. It is certainly helpful that the increased contribution rates have been announced well in advance so that expectations of real wage rises can adjust. In recent months the rate of increase of average earnings per person has been extremely low, partly because of a fall in average hours worked. For the economy as a whole, average earnings rose by only 0.9% in the year to February - the lowest figure recorded since April 1967.
It was as if the engagement was held in Bucharest and now, the official marriage is being celebrated here, in Tokyo. It was not an easy journey. The National Bank of Romania has shown its support and loyalty from the very beginning. Many of you, present here, played an essential role in making it happen: Minister Jan Kees de Jager, Governor Knot, Executive Directors Menno Snel and Ruud Treffers. I want to extend my thanks to them and to each and every one of you. Now we are a big family where trust is vital. I wish we have the opportunity to meet again in the future, look back on this day and be proud of our accomplishments. Thank you. 2  BIS central bankers’ speeches