Home—Blog—How to cut the deficit without cutting jobs
Sep 16, 2010, 12:06
Posted byMerryn Somerset Webb
Comments (15)
There was much fuss in the papers yesterday at the news that the average public sector worker is paid much more than the average private sector worker. Turns out that median gross pay for them is £539 a week. Chuck in their pensions and so on and they get total compensation of £615. And the rest of us? We make a median average income every week of only £479.
That's incredibly irritating (it adds up to over £7,000 a year less) but it is even more so if you look at some of the numbers behind the front line figures. As Damien Reece points out in The Telegraph, in the three months to February, private sector pay rose 1.8% on the previous year. In the public sector, with no justification whatsoever, it rose 3.7%.
I say "with no justification" because it is often thought that rising real wages should reflect some kind of rise in productivity. But these ones didn't. "In recent years, private sector productivity has risen 20% while public sector productivity has fallen 3%." Reece is not impressed. "It can't be justified," he says, "that 23m private sector workers subject to cuts and savings, are supporting 6m public sector workers who are refusing that same medicine while enjoying superior job security, pay and pensions. If anyone should be protesting and calling for a campaign of civil disobedience it's us in the private sector."
Quite. But the fact that public sector wages are quite this high adds - to me at least - even more to the mystery of why, instead of making hordes of people redundant in the coming rounds of cuts (which is not only expensive in itself, but also bumps up the welfare bill), we aren't just paying them a little less.
If we only cut the average public sector compensation down to the level of the average private compensation we'd be saving a deficit busting fortune immediately (around £42bn – £7,000 a year, on average, times 6m workers). And this surely wouldn't be that hard to do.
The inclination of the top level bureaucrats would, naturally, be to cut the pay of the lowest paid first. But as I have said before, it would be more straightforward (and fairer) to cut from the top down. You could cut all salaries above £150,000 back to £150,000. Then take 15% off everyone earning over £120,000, 10% off everyone earning over £90,000 and so on. Or something like that. I'm sure George Osborne can do the numbers. And that would be that. Job done.
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(16 September 2010, 02:32PM) Complain about this comment
Yes, I am totally amazed that this has not yet been suggested. Makes sense.
(16 September 2010, 04:05PM) Complain about this comment
If you reduce the pay in the public sector, especially those higher up, how are they going to pay for their huge mortgages, Buy-to-Lets and holiday homes (UK and abroad)? The thought of any public sector worker getting less than they did the year before is alien to them, it doesn't compute. Yet, it is as you say Merryn, one way out of the complete mess we're in caused by the financiers' co;k up (I mean slip) .
(16 September 2010, 05:00PM) Complain about this comment
This has happened in some councils, but as you stated those on the ground with lower salaries have been cut. Merryn you're right. As is too often the case , public sector management layer are not affected and often never held accountable.
(16 September 2010, 05:17PM) Complain about this comment
Almost half civil servants are in admin grades where average pay is £17,120 for women and £17,600 for men. When you compare civil service grades with comparable jobs in the private sector, admin officers, who deliver services such as getting people back into work, tax credits and passports, are paid 21% less.Exec officers, who work as supervisors in roles that require vocational qualifications are paid 18% less than in the private sector.So I'm afraid Merryn, you're maths dont add up (just like George's).How about collecting in the £120billion avoided and evaded tax by the wealthy and big business instead. This mess was created by the failure of the financial system.Ratherthan penalise public servants, wages should be uplifted for all workers who can then start spending again and help the economy grow.
(16 September 2010, 06:23PM) Complain about this comment
One problem with Merryn's strategy, which is as beautiful as it is simple and perfectly just, is that Ministers and MPs would also have to take a 15% cut, to set a good example. Merryn knows it isn't going to happen voluntarily. You can't take a juicy bone from a dog without getting bitten (Union strikes).But.... just the same thing will happen, involuntarily. Gordon Brown actually created the mess by spending far more than the country earned and paid in taxes. He did it by borrowing from the future. 40 year gilts will mean that children presently 15 years of age will be paying Gordon debts until they are 55, and that doesn't include debts increasing during the next few (actually many) years.Wealth is transferring from the West to SE Asia. In real terms their wages will increase, ours decrease. Probably by 15%. That is going to happen, involuntarily, whether or not Merryn's salary reductions are accepted.
(17 September 2010, 11:59AM) Complain about this comment
"Ratherthan penalise public servants, wages should be uplifted for all workers who can then start spending again and help the economy grow." -- Tracy EdwardsI bet Robert Mugabe was thinking something along those lines...
(18 September 2010, 10:31AM) Complain about this comment
People in top management private or public have had their snouts in the trough...real wages are flat against productivity gains.So what's needed are higher wages at the bottom and middle and more restraint at the top.There's no need to borrow, the money can be created like QE but put into the pockets of the un/deremployed at minimum wage so wealth WELLS UP rather than the pathetic trickle or rather crumbs down. This would cut the massive costs of un/deremployment . See here...http://bilbo.economicoutlook.net/blog/?p=10099http://bilbo.economicoutlook.net/blog/?p=277 on the origin of the crisis and wages failing to keep up with productivity.Andy, that's not comparing like with like, the problem in Zimbabwe and Weimar was the collapse in economic production as follows.http://bilbo.economicoutlook.net/blog/?p=3773
(18 September 2010, 12:06PM) Complain about this comment
I am an IT professional working in the civil service. My pay rise this year was 0.5% - next year and the following year my pay is frozen.Whilst not disagreeing that the senior managers pay appears to be increasing at a rate above us normal workers I would also suggest that the biggest scandal at present in the civil service is the amount of contractors employed who do the same work as normal civil servants but are being paid £500-£600 per day for the privilege.In my own organisation it is a ploy being used because we cant recruit any IT staff within the current payscales and the only way of maintaining the service is to fill the vacancies with contractors (this is utter madness!!)
(19 September 2010, 11:07AM) Complain about this comment
I've had pay rises of 1-2% and will get frozen...The problem with cutting ordinary people's wages is that this will reduce demand. Without the deficit increasing to fill this income/demand spending gap it will lead to firms reducing activity, jobs and lower incomes, lower income and value added taxes and a demand deficient deficit growthless one rather than a balanced private saving = public spending one that maintains growth.
(19 September 2010, 12:00PM) Complain about this comment
what is the average union official salary and average mortgage rate for the public sector. Are subsidised mortgages available to everyone.Is increasing union membership equal to increased productivity.Some people argue it is.
(22 September 2010, 11:56AM) Complain about this comment
This kind of 'big reset' is beautiful in its simplicity but unfortunately if you are on the receiving end could cause personal hardship.The fact is that everything was roughly in balance as recently as 2003. We weren't borrowing £750 bn from the rest of the world to fund a PFI, growing fiscal deficits and huge mortgage and house price inflation. How do we get everything back into balance though? Do we let asset prices and wages fall, possibly requiring further bank rescues and leaving a generation stuck in negative equity? Or do we let inflation (or more prescisely sterling deflation) take care of it, reducing the value of money in real terms but at least people will feel like they are still earning the same, even if their salary doesn't go as far or buy what it used to.
(22 September 2010, 12:16PM) Complain about this comment
There is no question that the sheer number of public sector workers paid more than the PM is a scandal. The pension on cost of this magnifies the excess. The long term relationship between government spending and GDP was circa 40%. It is now 55% and rising. Thus on an optimistic assessment of GDP of £1.3 trillion savings of 15% need to be made to sustain balance. Merryns proposal has merit but I doubt the public sector will swallow it. Pension reform is crucial moving to career average earnings at least if not money purchase. If only three of the FTSE 100 companies can afford final salary pensions the government funded by the taxpayer cerainly cant.
(22 September 2010, 07:58PM) Complain about this comment
I think Merryn's point is good. I have a business in a very competitive sector which confines me to paying relatively low wages. I cannot therefore compete with what the public sector can offer and have lost many promising staff because of it. I This is really a second cost to my business because I have to find the profit to pay the taxes to employ the public sector staff as well as work much longer hours etc to keep my business going. In reality the private sector has to compete with a non competitive public sector., that has been able to offer sweeter and sweeter terms over the years because it has been so much easier to raise taxes than to raise earnings in a competitive world.
(21 November 2010, 01:22PM) Complain about this comment
I think the time has come to where we should start looking at the NHS and taxes. Cuts ain't going to cut it. Other European countries function quite well with Health Insurance and the poor still get medical attention.Lower taxes for business and individuals, business can develop, consumers can spend and the extra money in their pockets will go back into the economy, boosting business, creating more jobs, more taxpayers, more bank savings and finally we can compete on price with most of the world as a supplier. Right now, I am unable to compete with suppliers from other parts of the world.
(05 August 2011, 08:30PM) Complain about this comment
I recently saw how public money is being spent in the form of prison officers, who i have to say are the laziest people on earth. Most are overwieght from lack of doing anything , they strut around and try to play judge and jury and think they have a godp given right to a above average pension. The government is right to cut these people down lazieness sat on your backside should not be rewarded especially from the public purse.
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