By Tash Shifrin
09 July 2009
Experts have questioned whether a public sector pay freeze would do much to restore the public finances and have warned that job losses will be needed to save more money.
The debate over public spending continued to heat up this week, in the run-up to a general election in which it could be a central question.
Audit Commission chief executive Steve Bundred ratcheted up the argument with a call in a July 5 newspaper column for a public sector pay freeze to be considered.
‘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 wrote in the Observer.
‘This is especially true if real wages in the private sector are still falling.’
He added: ‘Whichever party wins the next election, we can expect a reduction of £5bn or more in real-terms from public sector pay.’
The suggestion prompted a furious reaction from public sector unions. But experts also questioned how much money a pay freeze would release.
Colin Talbot, professor of public policy and management at Manchester Business School, said: ‘I think a pay freeze is much too blunt an instrument.’ He added: ‘The inflation bill is so low that even if you freeze pay, it won’t make much difference.’
Charles Davis, senior economist at the Centre for Economic and Business Research, agreed. ‘I don’t think you’ll make sufficient savings on pay. There would have to be significant pay cuts [for this to have an effect]. A more likely scenario is that there will be significant job cuts and service areas cut back by the next government.’
At the Chartered Institute of Personnel and Development, public policy director John Philpott argued for ‘an overall constraint on the total pay bill’. But the balance between holding down wages and restricting the numbers of staff on the payroll was a decision politicians would have to make, he said.
‘The total pay bill has gone up £5bn, £6bn, £7bn a year in the last five years. Some of that is due to increased employment – but employment hasn’t gone up that much. So a lot is probably due to pay increases, but through pay restructuring as well,’ Philpott said.
‘If you don’t do it the more painless way of the pay freeze, it means job losses.’
Both the government and the Opposition have stated that they would honour existing three-year pay settlements, but would have more flexibility after these end in 2011.
Chancellor Alistair Darling stopped short of ruling out a pay freeze, saying public sector pay had to ‘reflect prevailing conditions’ and the need to ‘be fair with regard to people who work in the private sector, many of whom have seen their pay conditions tighten’.
But comparisons suggesting a growing disparity between public and private sector pay rises were rebutted by analysts Incomes Data Services. Ken Mulkearn, editor of the IDS Pay Report, said recent Office for National Statistics figures on earnings growth ‘show a much smaller difference’ between the sectors.
Where a gap had appeared previously, this was due to ‘the gap between [City] bonus schemes this year – when there has been a crash – and last year, which was a record bonus year’. This had created ‘negative growth’ in private sector earnings between January and March, he said.
Bundred’s intervention was criticised as a step outside the watchdog’s role.
Talbot said: ‘I was quite surprised he said something like that, which does seem to be outside the remit for the Audit Commission. I’m a bit concerned he’s stepping outside the boundaries. It does sound as if he’s siding with other people against the government.’
Unison’s senior national officer for health Mike Jackson told Public Finance: ‘I think it undermines the independence of the Audit Commission.’
It was ‘not appropriate’ for the watchdog’s chief executive ‘to make highly political statements... he’s straying into public policy’, he added.
09 July 2009
Experts have questioned whether a public sector pay freeze would do much to restore the public finances and have warned that job losses will be needed to save more money.
The debate over public spending continued to heat up this week, in the run-up to a general election in which it could be a central question.
Audit Commission chief executive Steve Bundred ratcheted up the argument with a call in a July 5 newspaper column for a public sector pay freeze to be considered.
‘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 wrote in the Observer.
‘This is especially true if real wages in the private sector are still falling.’
He added: ‘Whichever party wins the next election, we can expect a reduction of £5bn or more in real-terms from public sector pay.’
The suggestion prompted a furious reaction from public sector unions. But experts also questioned how much money a pay freeze would release.
Colin Talbot, professor of public policy and management at Manchester Business School, said: ‘I think a pay freeze is much too blunt an instrument.’ He added: ‘The inflation bill is so low that even if you freeze pay, it won’t make much difference.’
Charles Davis, senior economist at the Centre for Economic and Business Research, agreed. ‘I don’t think you’ll make sufficient savings on pay. There would have to be significant pay cuts [for this to have an effect]. A more likely scenario is that there will be significant job cuts and service areas cut back by the next government.’
At the Chartered Institute of Personnel and Development, public policy director John Philpott argued for ‘an overall constraint on the total pay bill’. But the balance between holding down wages and restricting the numbers of staff on the payroll was a decision politicians would have to make, he said.
‘The total pay bill has gone up £5bn, £6bn, £7bn a year in the last five years. Some of that is due to increased employment – but employment hasn’t gone up that much. So a lot is probably due to pay increases, but through pay restructuring as well,’ Philpott said.
‘If you don’t do it the more painless way of the pay freeze, it means job losses.’
Both the government and the Opposition have stated that they would honour existing three-year pay settlements, but would have more flexibility after these end in 2011.
Chancellor Alistair Darling stopped short of ruling out a pay freeze, saying public sector pay had to ‘reflect prevailing conditions’ and the need to ‘be fair with regard to people who work in the private sector, many of whom have seen their pay conditions tighten’.
But comparisons suggesting a growing disparity between public and private sector pay rises were rebutted by analysts Incomes Data Services. Ken Mulkearn, editor of the IDS Pay Report, said recent Office for National Statistics figures on earnings growth ‘show a much smaller difference’ between the sectors.
Where a gap had appeared previously, this was due to ‘the gap between [City] bonus schemes this year – when there has been a crash – and last year, which was a record bonus year’. This had created ‘negative growth’ in private sector earnings between January and March, he said.
Bundred’s intervention was criticised as a step outside the watchdog’s role.
Talbot said: ‘I was quite surprised he said something like that, which does seem to be outside the remit for the Audit Commission. I’m a bit concerned he’s stepping outside the boundaries. It does sound as if he’s siding with other people against the government.’
Unison’s senior national officer for health Mike Jackson told Public Finance: ‘I think it undermines the independence of the Audit Commission.’
It was ‘not appropriate’ for the watchdog’s chief executive ‘to make highly political statements... he’s straying into public policy’, he added.
