Public sector salaries are back in the spotlight, after the chairman of the Government’s public spending watchdog came out in favour for a pay freeze. Writing in the Observer, Audit Commission boss Steve Bundred said public sector workers had ‘done well’ out of the last ten years and could ‘tolerate’ a cut in their take home pay (much to the horror of the unions). So far most of the UK’s recessionary pain has been confined to the private sector, and Chancellor Alistair Darling suggested yesterday that it was only fair for the public sector to share some of that pain. But given the size of the budget deficit, whoever’s in power is clearly going to have start making some big cuts somewhere…
Bundred’s article will have made uncomfortable reading for the Government, since he scoffed at the idea that Gordon Brown’s favourite mantra – i.e. cuts vs investment – is really the point at issue. The question is only where the axe will fall, he says – and public sector pay can’t be immune (including health and education budgets, more controversially). ‘At a time when inflation is likely to be between 2% and 3%, a pain-free way of cutting public spending would be to freeze public sector pay, or at least impose severe pay restraint,’ he argues. ‘This is especially true if real wages in the private sector are still falling’. Some £5bn could be saved this way, he reckons.
Darling at least seems to have recognised this, even if his boss hasn’t; he told Sky News yesterday that ‘public sector pay has obviously got to reflect prevailing conditions, and in particular inflation has come way down.’ It’s an uncomfortable fact that public sector pay has actually gone up over the last three months, while private sector pay has fallen across the board. So while talk of pay freezes has gone down like a lead balloon with the unions, it’s surely inevitable that it will eventually feel the squeeze – the only question is by how much.
Meanwhile the CBI also points out that we shouldn’t yet assume the worst is over for the private sector. Indeed, it’s come up with a new ‘alternative to redundancy’ scheme, under which struggling companies will be able to send workers home for six months for twice the normal Jobseekers’ Allowance rate (half of which would be paid by the Government, and the other half by the employer). At the end of this period, they could either take them back on, if the economy had picked up, or give them the standard redundancy package. The idea is this would help firms hang onto highly-skilled workers for the upturn, although unions are naturally indignant that it tramples over standard redundancy rights.
On the other hand, that’s extra cost for the Government – which might mean even less money in the public sector pay pot...
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