The Prime Minister this week is showing signs of trying to rebuild bridges with his unhappy Parliamentary party, and with his dwindling band of supporters in the country. We have witnessed an announcement about new rights for temps, ticking a box on the Unions’ agenda.
If he is to govern well (for a change) he will, however, continue to be at variance with his Trade Union base over the whole vexed question of public sector employment and pay.
If he is to have any chance of pulling the UK economy out of its many troubles in time for the General Election in May 2010 he needs to curb public spending. Cutting the benefit bill â€“ the â€œcosts of economic failureâ€ as he used to call it â€“ is going to prove difficult in the sharp deceleration we are now experiencing. Curbing the costs of employment in his rambling public sector is essential, if he is to control the ballooning deficit, give some scope for the interest rate and tax reductions the economy and the voter needs, and to restore some balance to a very unbalanced economy.
We are now entering a phase of significant private sector redundancies in the sectors most exposed to the credit crunch. We can expect more lay-offs in the house-building and construction industry. Last night, at a meeting with the NHBC, some MPs were taken through the bleak figures, with a likely 40% decline in new house-building this year. The retail sector is entering tough times, which will force some stores into cost-cutting redundancies, or worse. Any business handling discretionary spending by consumers will find there are fewer and fewer discretionary pounds left after people have paid the Council Tax, the Income Tax, the petrol and the gas bill. The banking sector too will need to slim down its staff numbers, led by the major redundancies from the governmentâ€™s very own Northern Rock.
So if the government is serious about controlling inflation, and curbing its own over large deficit, it has to curb the growth in public sector pay costs. The Prime Minister knows this, and for a year has been telling the public sector that we have to accept pay awards below the current rate of inflation. MPs have voted for just such a low increase, accepting we should take less than the Pay Review awarded. Other public sector workers will not be so understanding of the need for restraint.
It is particularly odd that the government should have decided to pick a fight with the police over this very issue, when the Pay Review Body award was perfectly sensible. The police perform a difficult task and do not go on strike. The least a government can do for them is to honour the independent Pay Review conclusions when they come up. The Home Secretary has shown her inexperience by allowing this battle, and the Prime Minister has once again shown a failure of judgement over which battle to fight, and with whom.
So what could the Prime Minister do to curb the public sector pay bill? He should grasp that the problem is a compound of two errors â€“ too much recruitment in recent years to quangoland and the bureaucracy, and some very generous pay awards that cannot now be rescinded. He needs to apply a steady but realistic downwards pressure on settlements, being tougher on the overstaffed bureaucracy than on the hard-pressed front-line public servants in the police and armed forces. Above all, he needs to start reducing the numbers by an across-the-board policy of natural wastage, exempting front-line employees in schools, hospitals, public protection and the armed forces.
In a public sector of five million employees at least 250,000 are likely to leave their jobs this year alone. If half of those leavers are not replaced, that would take a useful 2.5% off the pay bill. Making the bureaucracy an additional 2.5% more efficient would be a doddle. It would save taxpayers Â£7.5 billion in a full year assuming a total cost of just Â£30,000 each for their employment.
There are obvious savings a sensible government could make that probably do not appeal to this Prime Minister. Cutting out much of the regional bureaucracy in England by abolishing the Development Agencies, Regional Assemblies, government offices, strategic health authorities, regional housing quangos and the like would get the slimming process off to a good and popular start. Slimming down the 3000 different grant schemes at the Department for Business (rather than re-presenting it as the government is doing), simplifying the tax and benefit system to stop so much of the expensive money go round where people pay tax to pay their own entitlements, and stopping so many quangos pamphleteering against each other at the public expense would help.
Picking a fight with the police is one of the dumber things this government has done. Not controlling public sector employment and pay is one of the main reasons the UK economy is now in such a weak position compared to many of our competitors. It is preventing the lower interest rates and lower taxes the economy needs to compete, and individuals need to balance their budgets. Of course, there has to be a fall in living standards to adjust after too much borrowing. The way the government is doing it, too much of the adjustment is falling on the private sector, which means fewer jobs and greater unhappiness ahead.