Wakey, Wakey, if you want to save the world

When the Prime Minister misunderstood the comment on this blog which said that on the policies he is following there will be pay cuts and lower living standards, he showed how out of touch he has become with what is happening in the economy.

This week the Trade Unions at Corus are discussing a 10% pay cut for steel workers in the UK. JCB we hear on the BBC have already done a deal to save some jobs by cutting pay. At the other end of the remuneration spectrum some amongst the unloved Hedge funds and derivatives businesses are reducing their fee levels and bonuses and shedding employees. In many companies the cut in living standards is being made by making large numbers of people redundant to cut the overall wage bill. In all too many cases the choice is stark – sack some to save the others, or ask all employees to take a pay cut to save more jobs.

In the USA the same thing is happening. There the Democrat politicians in charge of the Congress demanded action from the Unions to cut the costs of employment before they would agree to put in temporary aid to the three ailing car giants.

I repeat, I hate recessions and want to see living standards rising. It is the result of the huge errors of their respective Monetary policies and bank regulations in the last six or seven years that the UK and the US have lurched from boom to bust. In this downswing companies are struggling to survive and are posing their workforce with the cruel dilemma. Do some lose all their earned income, or do all lose some of their earned income? Why can’t the PM grasp that?

Perhaps it is because he lives in the cosseted public sector, where he thinks he can carry on increasing the numbers of box tickers and administrators with salary rises and pension increases well above the private sector average, all to be paid for by borrowing more or taxing the emaciated private sector more. Surely given the sacrifice so many private sector workers are being asked to make, now is the time for the government to show the way to controlling public borrowing and costs, by asking for a pay cut from all public sector employees paid more than £100,000 a year, starting with cabinet Ministers? I thought this group of Labour politicians believed in justice? Is the relative treatment of the high paid in the cabinet and the upper levels of our nationalised banks fair when compared to the Steel workers?

Yesterday when the PM made his howler about saving the world, the desired headline inadvertently popped out from the supreme regulator of our financial sector and monetary policy in a way which brought the House down. Far from saving the world, Mr Brown has not even got the banks to work. David Cameron was right to challenge the PM on why his banking package is not working, and to ask him to amend it. I predict that for all the bluff and bluster, the government will now look again at it, because under the surface they must be alarmed at what is happening in the real economy.

Meanwhile Mr Brown is learning an expensive lesson in how the EU works. When the UK is told it ought to be more engaged to have more influence, it does not mean the UK has a licence to dictate policy to the rest. Mr Brown lurched from being gently sceptical of the value of all those meetings, to thinking it would provide him with a great mezzanine stage to play “saving the world”. He went with his prepared lecture on reflationary packages, and the dodgy policy of cutting VAT. The Germans rightly took fright at such an idea. They saw the danger of expanding public borrowing to offer a modest price cut on discretionary items at a time of falling prices and lost jobs. Mr Brown misunderstood the mood and pressed his case too far. This week he is being badly scalded by the German Finance Minister, who has launched a severe attack upon the Brown economic policy and gained great publicity for the public put down.

It takes diplomatic bungling on a grand scale to get into such a row when you clearly did not intend to. Mr Brown should now wake up on this issue, and realise that the EU does not want the UK to be engaged and influential to take the EU in a different direction. They want us to go along with what Germany and France have decided. On this occasion it just happens that Germany is right, and ironically it is now Germany that is arguing for the EU to keep out of economic policy and leave it to individual member states at a time of crisis.

So I add one cheer for the German Finance Minister, to my one cheer earlier this week for Ms Merkel. Which reminds me – yes I do back the Telegraph’s campaign for a tax break to help savers. That would be possible if Mr Brown cancelled his unloved VAT reduction and started to get to grips with public sector costs.

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One Comment

  1. Posted December 11, 2008 at 11:07 am | Permalink

    So we are starting to see wage deflation in some manufacturing firms? This is a worrying development.

    I see also that shipyard jobs are at threat in Rosyth and elsewhere due to defence cuts. Whatever next ?

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

    Promoted by David Edmonds on behalf of John Redwood both of 30 Rose Street Wokingham RG40 1XU

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