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Normally, there’s nothing more yawneriffic than a senior civil servant speaking to a committee of MPs. But yesterday’s appearance by Sir Nicholas Macpherson, the Permanent Secretary to the Treasury, before the Treasury Select Committee was rather different – for Sir Nicholas had several significant things to say, not least about public sector pay. The Times is the only newspaper to carry a report (£), from which I quote:

“The public sector pay squeeze is likely to last after 2015, the head of the Treasury said yesterday as he admitted that the Government had been ‘too soft in the past’ on the wage bill.

Sir Nicholas Macpherson, the Permanent Secretary to the Treasury, suggested that, ‘for all the complaints’, public sector pay was still too high.”

We should, of course, be wearily familiar with the subject of public sector pay. Right from the start of the Coalition, it has been a prominent and fractious element of George Osborne’s attempt to tame the deficit: you know, all those pay freezes and 1 per cent pay caps. The last we heard about it was during this year’s Spending Review, when more measures were put in place to curtail automatic pay rises based purely on time served.

The Chancellor has sold this as a matter of fairness: he’s trying to close the gaps that exist – even when numerous variables, such as age, qualifications and region, are accounted for – between public and private sector pay. But foremost in his mind will be the deficit. As it stands, about £180 billion is spent on remunerating public sector workers each year. £180 billion. That, as Policy Exchange has pointed out, is over 12 per cent of GDP, or about a quarter of all government spending. Lasting deficit reduction really does need to take those numbers into consideration.

How’s Osborne doing, then? I’ve thieved the below graph from a Policy Exchange report, as it sums up the situation nicely. Roughly speaking, it’s expected that the total public sector bill will be reduced by around 15 per cent over this Parliament and into the start of the next:

Public sector paybill

Which is why it’s so striking when the chief civil servant at the Treasury says that more needs to be done, and, indeed, that the Government has been “too soft in the past”. There clearly must be more space for cuts – but how much space?

The problem for Osborne, and perhaps for his successors, is that reducing the public sector pay bill is increasingly difficult over time. For starters, there’s the fiscal arithmetic. The main cause of the reduction, so far, has been the parallel reduction in the number of public sector workers, which the Office for Budget Responsibility expects to total around 1.2 million between 2010 and 2018. Once those jobs are lost, the ones that are left are presumably less disposable. Any furthers attempt to lower the pay bill will have to focus, more and more, on the pay itself.

And then there’s the dirty politics of it all – and, no, I don’t just mean the prospect of further strikes. You can be sure that, even if Osborne doesn’t do anything more with public sector pay for the rest of this Parliament, it will come up at the next election. What cuts do the Tories plan if they win? Would they come from public sector pay, the welfare budget, or both? What about national pay bargaining, should that end? They’re the sorts of questions that could widen the divide between the Tories and a Labour party that is promising big things about living wages and living standards.

This needn’t be bad for the Tories, so long as they can persuade the public that Labour promises are a symptom of fiscal incontinence. But it is dangerous. If Osborne does have some treats lined up for around election-time, he’ll have to be careful – in both the policy and his salesmanship – that they don’t come across as treats for natural Tory supporters, while everyone else faces more austerity.

85 comments for: Sir Nicholas Macpherson’s words underline it: public sector pay is a growing concern

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