Mel Barking Up Wrong Tree

The debate over whether to abandon national pay bargaining for the public sector rumbles on, given some spice by the characteristically rabid intervention today by Melanie “not just Barking but halfway to Upminster” Phillips, who is of course all in favour of someone else taking a pay cut. This time, though, she has the company not only of the so-called Taxpayers’ Alliance (TPA), but also the LSE.

Not really fair and balanced

Mel is worried about the public sector and their supposed propensity to vote Labour that she dumps a generous helping of abuse on those same people (“a captive class of permanent left-wing voters”), thus guaranteeing that more of them will vote Labour. Alas, she fails to tell how local economies manage to sustain themselves by having purchasing power summarily removed from them.

This may be because she has read the analysis of Henry Overman at the LSE Spatial Economics Research Centre (SERC). He argues that public sector salaries in less well off parts of the country could have a distorting effect on the private sector, but does not tell how, with unemployment at today’s advanced level, that sector should have such difficulty filling vacancies at whatever pay rate it offers.

Overman repeats the TPA assertion that the NHS may suffer in areas like the South East, but does not explain why there should not be a South East weighting, as there is one for inner and outer London. Job done, as they say. But he does seem to hold to the view that national pay bargaining is not such A Good Thing. Perhaps he should find out how other organisations with a national presence do their pay.

Fortunately, CIPFA have already produced a handy guide on this argument, snappily titled “Regional pay: the top ten myths”, with top of the pops being the interesting fact that “most large, multi-site private sector companies have national pay structures”. The piece is well worth reading, showing that there is much less local setting of pay, and more flexibility in the public sector, than suggested.

Mel, to no surprise, will have none of this: “far from deepening and unemployment in the depressed north and south-west, bringing down public sector pay in such areas would tempt businesses to start providing jobs at competitive rates” she asserts, not addressing the point that if there is a pool of unemployed already there, there should be no problem filling job vacancies.

Melanie Phillips is, on this occasion, merely regurgitating the mantra of a very old economics textbook. The notion that Government intervention would crowd out the private sector was disproved by Keynes in The General Theory Of Employment Interest And Money, but the likes of the TPA, and the more traditional wing of economic theorists, persist in repeating the assertion.

But Mel has persuaded a few more people to vote Labour next time around.