Britannia Radio

The Independent has leapt feet first into this difficult area and got  
it wrong!  Nobody is suggesting apart from the lazy journalists  
abolishing 3-year pay deals.  But they are saying that when the next  
round of pay deals is fixed they should not lag so far behind events.

But then the same paper redeems itself by a first class article by  
Dominic Lawson which destroys a number of general - and sometimes  
cozy - assumptions.

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FINANCIAL TIMES               6.4.09
Tories take risk over pay and pensions
By Jean Eaglesham and Chris Giles

The Conservative party pledged to crack down on public sector pay and  
pensions on Monday, in a politically risky bid to make state “excess”  
a battle line at the next general election.

The attempt to draw a sharp distinction between the two main parties  
on public spending coincided with a fresh warning on the drastically  
widening hole in the public finances.

The Institute for Fiscal Studies estimated that extra spending cuts  
or tax rises of £40bn a year would be required by 2015-16 to bring  
borrowing under control. The IFS predicted the deficit would rise  
above 10 per cent of national income this financial year.

The Treasury’s forecast in the Budget is likely to be even worse than  
the IFS estimate, because the institute used an out-of-date economic  
forecast and pencilled in strong economic growth between 2012 and 2015.

Ministers, who are finalising the Budget, are grappling with how  
quickly to bring borrowing under control so as not to snuff out a  
recovery.

Ross Walker, UK economist at the state-owned Royal Bank of Scotland,  
said it was “likely to take the best part of a decade to restore  
balance in the public finances, with slower public spending growth  
and a rising tax burden.”

George Osborne, shadow chancellor, insisted that a Conservative  
government would ensure “the bulk of the strain” fell on spending  
cuts rather than tax rises. Highlighting public sector pay, he said a  
Tory government was “going to have to make difficult decisions in  
this area”.

Mr Osborne was later forced to row back on the suggestion that the  
Tories would re-open existing pay deals, following a furious backlash  
from trades unions and Labour. Ed Balls, the schools secretary and  
close ally of Gordon Brown, accused the Conservatives of planning to  
“betray” public sector staff by reneging on agreed settlements.

An aide to the shadow chancellor told the Financial Times: “This is  
not aimed at existing deals – we want to send a signal for the  
future.” [The 3 year package runs out shortly after the election next  
year, so Labour squealing is misdirected -cs]  The Tories were likely  
to retain the principle of three-year settlements, but seek ways to  
make pay respond more rapidly to changes in inflation.

The retreat underscored the political sensitivities for the Tories of  
seeking to bring public sector remuneration into line with the  
private sector. David Cameron, the Conservative leader, has  
championed the National Health Service as part of a strategy to  
“detoxify” the party’s brand by assuring voters his party could be  
trusted not to shred public services.

But the recession is forcing the Tories to rewrite their manifesto to  
explain how they would return finances to a sustainable footing.

Labour seized on the Tory rhetoric, alleging it would entail “cutting  
the pay of our hard-working teachers, nurses and police”. [An example  
of the misdirected squaling! -cs]
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THE INDEPENDENT            7.4.09
Dominic Lawson: It's not the rich we hate, but those enriched at our  
expense

The issue of public sector pay generates anger rather than the silent  
emotion of envy

In a boom, envy; in a bust, anger. That much could always have been  
predicted. What's interesting this time around, however, is who the  
targets of the public's anger are. Of course, Sir Fred Goodwin, the  
former chief of Royal Bank of Scotland, has been named as public  
enemy No 1: yet it is not the fact that his strategy at RBS had lost  
its shareholders billions which led to his family needing police  
protection. It is simply the fact that we, as taxpayers, are paying  
(for the time being) his £700,000 a year pension.

Contrast this with the complete absence of rage directed at the  
figure of Andy Hornby, the former boss of Halifax Bank of Scotland,  
whose hubristic management of that financial institution has also  
resulted in corporate collapse and rescue, by a mixture of Lloyds TSB  
and the state. Yet through the simple expedient of turning down the  
payoff to which he was contractually entitled and deciding just to  
take £2,970 in basic statutory redundancy pay, Mr Hornby need have no  
fear for his family's safety.

In their heyday – which was not so very long ago, both Goodwin and  
Hornby drew down very large salaries and bonuses; that will have made  
them the object of envy among those who regard the acquisition of  
wealth as in itself a disgrace, but such an attitude is much less  
widespread than might be imagined. Most people have the healthy  
attitude that if someone makes money honestly in a competitive  
industry and pays his taxes, then he is to be emulated rather than  
stigmatised.

The crucial point is that the public always had a choice about  
keeping the likes of Hornby and Goodwin in the style to which they  
had become accustomed: nobody was required in law to invest in their  
companies or indeed pay their salaries.

This, unfortunately, does not apply once the taxpayer is on the hook,  
as we are at the moment with RBS and, to a lesser extent, HBOS.

This also explains why the fury over the exploitation by many MPs of  
their second home allowance dwarfs even the outrage over improvident  
bankers, to judge from the reception given to the Tory chairman Eric  
Pickles when he tried to defend the current system to the audience of  
BBC TV's Question Time. Mr Pickles is an immensely tough character,  
but he was visibly shaken by the reaction of what we must presume  
[Why must we?  This was the BBC! -cs] is a representative cross  
section of the public.

The fury is not so much about the scale of the perks – the total bill  
for MPs is less than £100m, a minuscule drop in the vast ocean of  
state expenditure – but the fact that the money is taken from us  
compulsorily and that there is nothing we can do about it, short of  
refusing to vote for them once every five years. This is why the  
issue of public sector pay generates anger, rather than the more  
silent emotion of envy.

No organisation is more adept at directing such anger than the Tax  
Payers' Alliance. To mark the start of the financial year, the  
alliance yesterday revealed that more than 1,000 senior town hall  
staff are paid six-figure salaries, with at least 16 earning more  
than the Prime Minister. Their equivalent of Fred Goodwin is John  
Foster, who left the social care scandal-ridden Wakefield council a  
year ago with a severance payment of £340,000 on top of his annual  
salary of £205,000. In the very next month he obtained a new job,  
with similar pay, at Islington council.

Mr Foster is an extreme example, but he is part of a wider  
phenomenon. It had long been thought that the public sector is the  
poor relation of the private, but under the New Labour Government  
that situation has been reversed, and dramatically so. Last year, the  
median figure for pay in the public sector was £522 a week, against  
£460 for the private sector. Yet because 90 per cent of public sector  
workers are in 'gold-plated' defined benefit pension schemes,  
subsidised by the taxpayer, compared with just 12 per cent of the  
private sector guaranteed a pension based on final salary, the  
average private sector worker would need to earn 12 per cent more  
than his public sector equivalent in order to be as well off overall.

Hitherto the Government has been too frightened of the formidable  
public sector unions to do anything to bring an end to what is  
sometimes, rather tastelessly, called "the pensions apartheid"; Alan  
Johnson tried to tackle it in 2006 but bottled out, presumably  
because he could not count on Gordon Brown's support – the then  
Chancellor would have not have wanted to offend the public sector  
unions ahead of a possible contested Labour leadership election. Now,  
however, the people Gordon Brown must fear are the electorate as a  
whole – and their anger at paying ever-higher taxes to fund an  
unsustainable public sector wage bill will only increase during a  
recession in which wage cuts are becoming commonplace in commercial  
businesses.

Perhaps it is the awareness of this rising anger which has rendered  
the old Left surprisingly passive, if not mute, during what has been  
described as "a crisis of capitalism". Its supporters know that under  
Gordon Brown it has got all the increases in public expenditure that  
it could ever have aspired to – on a running total, the bill has been  
about £1 trillion bigger than if it had merely kept pace with  
inflation since Labour took over in 1997.

In this context it was interesting to hear Michael Meacher, one of  
the last Bennites in the parliamentary Labour Party, tell the  
listeners of the Today programme yesterday that public spending cuts  
had to be implemented. Naturally Mr Meacher also argued for a higher  
marginal rate of tax – 60 per cent – to be paid by those he defined  
as 'the top 2 per cent'. Yet such a charge – even supposing that its  
targets made no attempt to avoid it or scarper altogether – would, on  
Mr Meacher's own admission, raise no more than £1bn or £2bn a year,  
equivalent to about 1 per cent of the total public sector wage bill.

No, the vast bulk of any increase in taxes necessary to fund the  
mounting government debt and the seemingly unstoppable growth in New  
Labour's quangocracy, will have to come from what Gordon Brown  
endlessly describes as "ordinary hard-working families". He has  
constantly sought their affections, but in a year's time he will  
discover just how angry they can get.

Perhaps Mr Brown thinks he will enjoy overwhelming support by those  
in the public sector who have benefited personally from his policies.  
This seems to be the view of some union leaders. When David Cameron  
suggested he might rein back public sector pension entitlements, the  
TUC general secretary warned him – not in a friendly way – that "this  
is the kind of issue that could make the difference in marginal seats  
at the next election".

The point, however, is that public sector workers pay taxes too – and  
they, more than anyone, are well placed to see how their money is  
wasted in mismanagement by Government. Thus it is that a Populus poll  
for The Times last month showed that among public sector employees,  
the Conservatives had the support of 38 per cent of voters, compared  
with just 26 per cent for Labour.

Intolerable as it must be for some on the British Left to  
contemplate, the "crisis of capitalism", which they had predicted and  
hoped for, will result in the triumph of the capitalists' favourite  
political party.
d.lawson@independent.co.uk