By Lea Pachta

The CBI today called for an immediate freeze in the public sector pay bill for two years and re-engineering of public services to help get the public finances under control. This needs to go hand-in-hand with measures to allow businesses to foster economic growth and job creation.

After a decade in which the economy has been driven forward by Government spending and unsustainable growth in the financial sector, the CBI argues that the growth engine for the future has to be powered by private sector investment and trade.

Spelling out its priorities for the new Government in a Time for action: Reforming public services and balancing the budget, the UK’s leading business group highlighted the areas where immediate cost-savings could be made, while maintaining frontline services. For example, freezing the total public sector pay bill from 2010-11 for two years through selected pay and recruitment freezes could save £18bn.

The CBI emphasised that far bigger savings could be achieved through a fundamental re-shaping of public service provision, including using the private and third-sector to deliver better outcomes more efficiently. For example, by re-engineering health and social care to treat patients in their homes and in the community more than £8bn could be saved by 2015-16.

Public sector reform must also be accompanied by policies that allow the private sector to deliver growth, investment and jobs.

Richard Lambert, CBI Director-General, said:
“We have a new Government with a determination to get a grip on the public finances and the political will to do it. We need to see a detailed plan for achieving this in the Budget. Experience suggests that the best way of bringing down a substantial deficit without damaging growth is through spending restraint rather than raising taxes.

“With a public-sector squeeze looming, the new Government must also do everything it can to create the right conditions for the private sector to sustain and create new jobs.

“That means providing certainty around taxation and energy policy, sustaining capital investment, and strengthening our skills base. Above all, we need to send a strong message to the world that the UK is open for business.”

Among the measures the CBI says are essential for delivering growth are:

· Establishing competitive business taxes
· Developing a strong banking system
· Skilling students for the future and strengthening apprenticeships
· Attracting and cultivating enterprise and industry
· Prioritising energy security
· Working towards a low-carbon economy
· Developing the infrastructure for economic growth

Looking at the proposals on public sector pay in more detail, the CBI argues that unlike the private sector, where pay freezes have been commonplace during the recession, public sector pay has continued to increase. Average pay grew by 2.8% in the public sector in 2009, while it fell by 0.9% in the private sector.

The CBI is not advocating an across-the-board freeze in the pay of every single public sector worker. Provided the overall pay bill did not increase, there would be scope to exclude frontline staff and the lowest paid from pay and recruitment freezes.

Other areas for short-term action include cutting waste and duplication by sharing support services such as payroll and human resource functions; combining purchasing power to deliver savings in procurement; and opening up public services to greater competition to allow the best provider to do the job.

Other steps also need to be taken now to re-engineer public service delivery, which could reap potentially huge savings in the medium-term. This should include making use of new and proven technologies, improving workforce management to reduce staff sickness rates, and allowing the private sector to provide non-core activities.

John Cridland, CBI Deputy-Director General, added:
“The new Government will need to show strong political will to contain public sector labour costs. It needs to slam on the emergency brake now by introducing an immediate two-year pay bill freeze across the public sector, and sweating its assets to ensure that every pound is well spent.

“While spending cuts and efficiency savings are important, there is a much bigger prize to be had through fundamental re-engineering of public service delivery. Allowing the best provider to deliver public services will increase innovation, while keeping a lid on costs.

“We believe that this is the best way of ensuring that frontline services can be maintained without resorting to crude cuts.”

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