Private sector sets example by cutting pay
Two-thirds of businesses claim they will cut or freeze wages. I’ll believe it when I see it, but such threats are the perfect lever for freezing public pay immediately.
Wage rates, like all other prices, ought to be falling during a recession. Deflation in personal expenditure while inflation in pay continues is unsustainable.
Some 58 per cent of businesses surveyed by the British Chambers of Commerce claim they will freeze wages this year with another 12 per cent cutting them. Maybe when negotiations come to conclusion the reality will not be quite so resolute, but even if those proportions are halved it will be a considerable cost saving for the companies involved and a serious easing of the pressures on the national economy.
Pay cuts are very difficult to implement for employers. For the self-employed or commission-based jobs such as estate agency or architecture, the pay cut comes automatically with a reduction in business. It ought to be possible to fill management vacancies at rates lower than the person leaving received, but for most other jobs, lower wages are achieved by maintaining the rate while offering fewer hours of work.
Normally a wage freeze results in a real pay cut but with inflation turning negative, even a frozen wage is a real increase. It needs a deep cut in pay to produce a real fall.
But wage cuts are a good thing in that they spread the recession across a wider base, rather than concentrating it on the unlucky minority that lose their jobs and income entirely while the majority continue to be paid at old rates.
And it is important the spread of the recession reaches to the public sector. It will be a scandal if private firms cut pay by 1 per cent while civil servants, town hall staff and others receive rises of 2 per cent or more.
The stated intentions of the Chambers of Commerce companies must be used as evidence that public-sector pay has to be curtailed too. As it is the Chambers’ members that fund the public pay bill it would be incongruous for the provider of those funds to suffer cuts to finance public-sector increases.
The Post Office has already warned it will be freezing pay this year. That freeze must be extended across the whole public sector – including the nationalised banks that got us into this mess. It is the easiest way of tackling the spending cuts essential to balance the budget. And with prices falling, it will not curb workers’ spending power.
The question is whether central government has the will to do it. Not only would it affect the bureaucrats’ own pay packets, public-sector workers have votes and politicians are reluctant to upset voters before a general election.
