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“Richard, what are you for?”

This was the question I was asked by a business I then worked for just as the economic crash was biting hard in 2008. I was expecting budget squeezes after seeing contractors laid off and redundancies being planned, but these words came out of the blue, and I had to think on my feet for an answer. My answer was: “I protect you against unbudgeted costs”.  To any well-run business, budgets are everything – and deviating from then always begs serious explanations about why.

It is absolutely true that the private sector is the wealth creator of the nation. We need strong and vibrant private enterprise to grow the economy, create jobs and prosperity and give us all a decent standard of living. Yet I’ve worked in the private sector for the best part of 20 years, and have never been a wealth creator. It is very clearly understood in responsible businesses that wealth protection is just as important as wealth creation.

Now scale this up to the UK economy. The principles are exactly the same. The wealth creators are private enterprise: the businesses which grow, attract inward investment and employ people, paying wages and taxes. The wealth protectors are the public sector. Whereas in business, my role is to ensure the wealth created in the business stays in the business to help it grow and invest, in the public sector the role is to make sure the private sector can function with the minimum of hindrance.

To some, this may seem like a contradiction in terms. But the work of business would be severely hampered if the roads weren’t safe, therefore slowing transit of goods; their employees were constantly sick, and therefore unproductive; or if the staff were poorly educated – and therefore unable to perform at all.

It is absolutely right that emergency measures had to be taken as the UK began to emerge, battered and bruised, from the deepest and most damaging recession in generations. Businesses were cutting hours, going on short time and people were losing their jobs. During this period, the public sector was not immune from this but was, in relative terms at least, unscathed. When the slow road to recovery began in 2010, a public sector pay freeze was absolutely right at this time.

Until now the freeze, which later became the pay cap, has had built in safeguards, deliberate and incidental, that have reduced its immediate impact. During the first two years – when it was a freeze – it never applied to public sector workers on less than £21,000 p.a. (a fact conveniently forgotten by the opposition). Any public sector worker on an hourly rate of £10 an hour was not subject to the freeze.

When the pay freeze became a pay cap of one per cent, the lowest paid benefited from the increase in national minimum wage and the introduction of the national living wage. In local authorities alone, this benefited over 80,000 workers. In addition, new entrants to the public sector may also find themselves on a pay scale which increases year on year, regardless of any pay cap.

However, this impact reduction has expired. The National Living Wage is now well established, pay scales have been climbed and the cap may now be affecting not just recruitment and retention, but also choice of recruitment. Serious talent is less likely to choose public service as a career. We should look again at appreciating the added value that the public sector brings to the wealth of the economy and being able to share in that wealth – and this means lifting the cap.

Lifting of the pay cap in the way that Labour’s election manifesto proposed would add £4 billion a year to the public finances. Conservatives campaigned on the basis that this was unaffordable, and I agree. To lift the pay cap entirely across the public sector would not be affordable; would put the hard-won economic recovery at risk and would be unfair. Why should someone on a low wage in the private sector be asked to fund a pay rise for high earners in the public sector?  A sensible way forward would be to phase in a lifting of the pay cap, starting with low earners.

73 comments for: Richard Short: There is a way to lift the pay cap – without caving in to Labour’s plan and putting jobs at risk

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