The Chancellor’s Autumn Statement contained important initiatives to wean Britain off the dangerous Brown cocktail of a burgeoning public sector, ballooning deficit financing and an over-reliance of the financial services sector. The drink was laced, some might say purposely spiked, by the Labour government in its final throws, with ingredients like the 50p tax rate to poison the inheritance of the Coalition.
Yet one of the cures prescribed by George Osborne seems to have gone curiously underreported, but its importance to changing the economic culture and balance of Britain cannot be underrated. That is his request that Public Pay Review bodies examine ways in which pay can be made more responsive to local markets and report by July next year.
Though the unions will never admit it, national pay bargaining for the public sector hurts the taxpayer, hurts the private sector, especially small businesses and start-ups and, ultimately, hurts the job-seeker too. The TUC barons, wedded to monopoly union model theory, stopped Gordon Brown investigating the opportunities of localising pay bargaining in 2003. Nearly a decade later they must not be allowed to do so again.
Today in the West Midlands, the average price of a house is £178,000. In the South East the average is £284,000. A pint of beer which costs less than £3 in the Black Country can approach £4 in pubs just outside London. In Tamworth one adult cinema ticket is priced at £7.70. In the South East that ticket will cost over £10. The disparity is even greater between the North East and London where a cinema trip will cost either £7.25 or £11.10 depending on whether the film you want to see is showing in Newcastle or New Cross. The same is true of rents, food and clothes.
The point is obvious: it is much cheaper to live in some parts of the country than in others. The private sector recognises this and prices the labour market accordingly. Yet for millions of public sector workers, their salaries will be the same whether they work in Woking or Wakefield, Weymouth or Walsall. Their nationally controlled buying power skews local labour markets, inflating wage rates and pricing small businesses out of competition for recruits. That, in turn, drives an over-reliance on the public sector to provide employment – and an over-reliance on the taxpayer to fund it.
By scrapping national pay bargaining and introducing a truly local not regional negotiating structure, wage rates especially in economically depressed communities of the country can be sufficiently competitive to encourage private job creation well beyond the scope of the public sector. Those areas are the ones with the most people trapped in poverty and dependency. They are the people who will benefit most from a more flexible wages regime. It will also deliver a significant saving for the tax payer as pay accounts for up to 30% of the public sector bill. That saving can be used to reduce our deficit, cut taxes or spent on value for money capital projects.
Labour and their paymasters seem to think there is something progressive about national pay bargaining and a slew of anti-employment “protections”. But as Alan Greenspan once observed of attitudes in Europe, there is nothing progressive about 10% unemployment because too many rules and a rigid pay structure conspire to choke off job creation. If faced with the choice of a job with a lower wage than in a more expensive part of the country, or no job at all, I think the majority of active job-seekers will opt for work and opportunity over welfare and dependency. The government must respond to this appetite and move quickly to reform pay bargaining when it receives recommendations next year. It is an essential thread in the fabric of the modern, balanced and sustainable economy George Osborne has set out to tailor.