The sooner public sector pay is tackled, the better for us all

Published on Sunday 5 July 2009 21:55

WHEN Steve Bundred, the head of the Audit Commission, called for public sector pay to be frozen or at least subject to "severe" restraint to help rebalance the public finances, he would almost certainly have been warned that such remarks risked provoking considerable anger. But which group is likely to be angered most? The public sector trade unions? Or workers in the private sector who are astonished that such curbs have not already been put in place?

They will be angrier still if nothing is done soon.

For years public sector pay lagged that in the private sector. For that reason there was some sympathy for public sector workers. But times have changed. Today the growth in average earnings in the public sector, as measured by the Office of National Statistics, has outpaced that in the private sector since 2000 and the gap continues to widen.

Average pay growth in the private sector over the year to April 2009, excluding bonuses, was 2.6 per cent. The equivalent figure for the public sector was 3.5 per cent. Pay including bonuses throws up an even sharper contrast: the pace of increase in the private sector of 0.3 per cent compares with 3.6 per cent in the public sector.

Meanwhile, numbers employed in the public sector continue to rise. The total is up by 15,000 since December 2008, to 6.02 million. Over the same period, the numbers of people employed in the private sector has slumped by 286,000.

Faced with a widening wage differential between the two sectors and a growing number of public sector employees, it is little wonder the head of the Audit Commission should question how long this can continue. A year into the recession, with private sector employment continuing to fall rapidly, an ever-rising public sector wage bill falls on a diminishing private sector workforce. How can this possibly be regarded as sustainable, let alone fair?

Alistair Darling said yesterday that public sector pay had to be "fair" to private sector employees as well. The problem, of course, is that in proposing some form of pay restraint the government risks arousing the wrath of public sector unions – the bedrock of Labour support. Last year a policy to limit public pay rises to 2 per cent prompted walkouts.

However, as Mr Bundred argues, freezing public sector pay could provide 5 billion of the 50bn that would otherwise have to be found through tax rises or spending cuts. He has urged the government not to believe "the shroud-wavers who tell you grannies will die and children will starve if spending is cut. They won't. Cuts are inevitable and perfectly manageable."

Unfortunately, as the Prime Minister's recent responses in parliament made clear, it is Gordon Brown who is the shroud-waver-in-chief. But a public sector pay freeze is increasingly coming to look like a question of when, not if. And history tells us that the longer the delay, the more painful it is likely to prove.