I suspect most of us have seen this article by the Telegraph suggesting that there could be a two year public sector pay freeze to help pay for the £300bn coronavirus bill.
This must not be the case and we must fight tooth and nail to oppose any measure that freezes the pay of the public sector again. Instead, we should push for a double lock on public sector pay.
The pension triple lock was introduced under the Coalition, and was a Lib Dem policy, to help improve the living standards of those who had retired. The public sector double lock should be there to do the same for public sector workers.
I propose that it works in a similar way to the pensions lock, that is either a pay increase of 2.5% or RPI + 1%, whichever is highest. A pay settlement like this will show the 5.4 million people employed in the public sector that we support them wholeheartedly and will help us to recruit more people with diverse experience.
The boost to consumption will be welcome as we need to get people spending money again, money which they can only spend if they have it. Healthcare in particular has seen large productivity increases in the last decade, outperforming some of the private sector, it’s time they were rewarded.
I expect there will be two main pieces of opposition to this proposal. The first is how it will be paid for. The second is that this proposal will also boost the earnings of middle-managers and senior leaders who are already paid above average salaries.
The first criticism was the defining narrative of our politics from 2010 to 2015. Politics has since moved on, as evidence by the Debt Management Office raising multiple billions of pounds worth of bonds at historically low rates and being oversubscribed 3 to 1.
The second criticism is something that we, as pro-universalists, need to get better at addressing. It is a criticism often levied at any policy which is universal, despite its weakness. Yes, middle management will get a pay rise as a result of this, however, the progressive nature of our tax system will mean that those on lower wagers will keep more of the wage rise as a result. Furthermore, the bureaucracy involved with cherry-picking will end up costing more, resulting in more administrative staff rather than frontline staff.
It’s time we support our public sector workforce. The work they do domestically and internationally is imperative in protecting the UK and our allies. It’s time they get the pay settlement they deserve and if COVID-19 hasn’t made you realise how skilled our public services are, not much will.
* Tom Purvis is a member of the Sheffield Liberal Democrats and is standing in the next local elections
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13 Comments
Sure, but what about private sector pay?
If private sector pay is declining, is it fair to levy extra taxes on private sector workers to boost public sector pay? Because this is what you are demanding.
Sure we would all rather the super rich paid for everything, but that is not what the consequence of your double lock would be.
@Joe Re private sector pay, I think there are alternative measures which can be utilised to help growth in private sector pay such as boosting the minimum wage, improving infrastructure in/out of cities and around town for example. May be a topic for another LDV post
Like for like (accounting for qualifications, experience etc), the ONS already has public sector pay higher than private sector. Not only that, but the public sector has experienced a huge ‘hidden’ rise in remuneration this past decade – that of their pensions. A ‘modest’ index linked pension of £25,000 is now worth nearly £1 million and rising. Private sector workers on the other hand have seen pension prospects collapse.
It isn’t right that the cost of this crisis is likely going to be borne by the public sector in pay freezes but nor is it right that the public sector are guaranteed above inflation pay rises year on year paid for by the private sector. We shouldn’t as a party be in the business of favouring one (public/private) over the other.
I work in the private sector and our company has frozen all salaries this year because the business and its share price have been struggling. I can luckily afford this but others are not so lucky and others still have been laid off as the company contracts. I don’t blame the company for this – in fact they’ve been very fair, particularly in the current crisis – but the reality is that the company is facing an existential challenge.
While I can see merit in some sort of pay guarantee we would need to build in sufficient flexibility to cope with possible economic downturns so that the government could, for example, hold back increases or even freeze pay for a limited time. Then again, would this be much of a guarantee?
Tom,
your article starts with a good argument against freezing public sector pay. However, we are in a deep recession where large elements of the private sector workforce are currently experiencing deep pay cuts of 20% and many have become unemployed. This is going to get worse for some time to come not better. There are two sectors that are largely protected from these cuts and unemployment. Those working in the public sector and those who were in receipt of benefits prior to the pandemic.
With a negative supply shock such as we are experiencing the initial impact is deflationary as spending is curtailed, private sector savings/loan repayments increase, and public sector borrowing increases. This is the paradox of thrift. The government can and should recycle these domestic savings into the economy but it needs to be economy-wide and be of benefit to those that have had pay cuts and lost their jobs.
The initial deflation goes into reverse in the recovery period as accumulated savings start to get spent against a reduced supply of goods and services and inflation kicks in. Inflation is controlled by a combination of interest rate rises and increased levels of taxation both of which act to constrain economic recovery.
The simplest and most effective way to achieve a balanced recovery is a shift in economic policy from inflation targeting to nominal GDP targeting. Monetary policy and fiscal policy is set to achieve a nominal growth target of say 4% made up of 2% inflation and 2% real growth. If real growth is flat or negative (as it may be for some time) we accept higher inflation until we start to approach full employment. This is the stagflation that was experienced in the 1970s. If real growth picks up above 2%, inflation is held at 2% with contractionary monetary and fiscal policy. Public sector pay increases would be set at this level of 4% per annum with targets for increased productivity of 2% per year within the sector.
“…… to help pay for the £300bn coronavirus bill.”
More faulty neoliberal thinking! The Government is not a household. Households have bills to pay. Currency issuing governments don’t.
The coming coronavirus induced recession will involve shocks to both the supply and demand side of the economy. If supply holds up better than demand, in the aggregate, we will have a more conventional recession and the government should step in to increase its spending and/or cut taxes to balance up the two. On the other hand, if demand holds up better than supply we could have an inflation problem. Too much money chasing too few goods and all that! Then the govt should cut its spending and raise taxes.
We can’t know which way it will go right now. Best to keep an open mind.
It’s really not that difficult but it is quite amazing to hear the nonsense that is spouted by so called experts on the TV and radio.
@ PT ,
“A ‘modest’ index linked pension of £25,000 is now worth nearly £1 million and rising.”
Assuming investment managers are capable of at least making a rate of return on capital which equals the rate of inflation (we’d normally expect them to do much better) this can only be true if retirees live, on average, for 40 years after retiring. As the retiring age is gradually creeping upwards, and allowing for the effects of Covid 19 on us oldies, this would seem unlikely!
Either we can say that public sector workers are a) fairly paid, b) underpaid or c) overpaid. I really don’t know enough to say. But whatever it is, it should be treated as a separate issue and not related to the present problem. The govt may need to put its foot on the accelerator, or the brakes, in the coming months. We don’t know which one just yet. But, we are still left with the answer of a, b or c. The crisis doesn’t change anything.
Radio 4 this morning had two eminent economists, IIRC Jim O’Neil (formerly Chairman of Goldman Sachs Asset Management) and Jonathan Portes (formerly chief economist in Brown’s Cabinet Office, now at Kings College) agreeing there is no need to “pay for the £300bn coronavirus bill”.
O’Neil pointed out that long term interest rates are so low that it could finance that amount for around only £3bn/year which is peanuts to government. Alternatively, it could just print the money as Peter Martin says.
The problem I see is with the real economy. The government is committed to its Brexit timetable (and will likely be held to it by hardliners) yet has been so distracted by the coronavirus that it has made next to no progress with a EU deal (and may well finish with No Deal) or other important trade deals.
Absent key trade deals, supply chains will be devastated; even the most hard-line Brexiteers accept there will be considerable short-term pain. Coronavirus fallout will compound the problems; many businesses will fail and unemployment will soar so by early next year the nation may no longer be earning anything like its current standard of living.
The Tories don’t know how to fix that so what might they do? They certainly cannot admit that they have been heading into the swamp of financialisation-driven asset stripping of the real economy and the consequential growing inequality for 40 years.
One option is that they will go fascist, using a trade deal with the US as cover. Alternatively, they may suddenly discover the ‘joys’ of deficit spending, hope to limp through to the next election then blame the mess on an incoming Labour administration.
A couple of points –
Interest Rates are virtually Zero, Now but no-one is going to lend Money with those Rates locked in. At some point Rates will go up again, the normal level used to be 4% or 5%.
£300 Billion looks like a massive underestimate to me, we arent even half way through this Crisis yet & We have to add on lost Revenues as well.
@Paul Barker – Yes general interest rates might be low, however, interest rates on overdrafts, which I suspect many are utilising as they rebalance income and out-goings, are in a different world – one previously only populated by payday loan companies and loan sharks…
Tom made the point about taxing lower paid workers as being “progressive” tax rates.
Not if you include Council Tax, we used to have a good alternative to this in ours local income tax policy, but we went all wobbly on this after the 2005 GE, worried about losing seats to the Tories.
To bring about a progressive tax system, which is needed, local income tax would be a big step forward. If/When are we going to re-adopt this policy?
Tom,
Tell you what, why not boost private sector wages first, and then private sector workers can afford the extra taxes for your plan to boost public sector wages. Then we’re not being unfair to anybody.
Public sector pay has been held down by blanket restrictions for a decade and more and it is clear that they can no longer recruit in many cases, with 120,000 and increasing vacancies in the NHS alone.
These are many of the most important workers in the country now the more under pressure from this dangerous crisis. Health, Police, Teachers, Lecturers, Fire & Rescue, Social Workers. Even Civil Servants which include Customs are under huge extra pressures from dealings with the virus and brexit.
Yet as soon as there is a revenue shortfall, they are treated as the go to area to have their pockets picked, including many on low and below average earnings. Many whose past seemed reasonable a decade ago, have now fallen into rent arrears and food banks. Britain should be ashamed