By Claire West
Dr John Philpott, chief economic adviser at the Chartered Institute of Personnel and Development (CIPD), comments as follows on today’s emergency Budget:
“The Chancellor has introduced what must surely rank as the most astonishing UK budget statement in modern times. Mr Osborne’s combination of £32 billion additional spending cuts by 2014-15 and an £8 billion net tax hike amounts to an unprecedented fiscal squeeze, including an extremely severe clampdown on the welfare bill. Yet both he and the independent Office for Budget Responsibility (OBR) reckon there is a greater than evens chance that the government will meet what the Chancellor calls its ‘fiscal mandate’ with barely any serious short-term impact on economic growth and employment.
“Although the OBR has downgraded its pre-Budget economic growth forecasts in the light of Mr Osborne’s austerity measures, and become a bit more pessimistic about jobs, the suggested outlook for the economy is nonetheless remarkably rosy, with investment and net exports more than making up for weak household spending and a big drop in public spending. The Chancellor could hardly have asked for more had he and his Treasury team stuck with tradition and come up with the forecast themselves.
“One suspects, however, that the forecast outlook will prove too good to be true. The fiscal squeeze both at home and across the eurozone will curb the demand for the goods and services that ultimately drives business investment and exports. Economic growth will slow by far more than today’s budget suggests and, rather than peaking at 8% this year, unemployment will continue to rise toward 3 million (10%) by the time Mr Osborne’s measures take full effect. This will add to public borrowing and debt, not reduce it. The 2010 Emergency Budget is not the beginning of the end of the UK’s post-recession economic difficulty but the start of a period of painfully slow growth, falling living standards, and prolonged high unemployment.”
Additionally, Dr Philpott comments on the public sector management challenge ahead:
“Significant job cuts were inevitable whoever won the election. However, there is little evidence that any of the parties gave serious thought to the enormous management challenges associated with delivering their manifesto commitments through a workforce demoralised by redundancies, pay restraint and pensions reform.
“We’ve warned consistently that the public sector may be numerically overmanaged, it is qualitatively undermanaged. To get the best from a workforce cowed by the harsh winds of fiscal restraint will require a step change in management capability in the public sector. Those who lose their jobs are only part of the story — how the ‘survivors’ are managed will determine if the story has a happy ending for the UK’s public services.”
Charles Cotton, CIPD reward adviser, also comments on the two-year public sector pay freeze, plans to raise the state retirement age and to consult on the default retirement age, and the newly-formed Hutton Commission into public sector pensions:
Public sector pay:
“In the short term, while a pay freeze will stop the public deficit getting any worse, it will do little to help the deficit get any better. For that to happen we need to review what public sector services we need, what delivery structures are most appropriate, what skills, behaviours, attitudes and performance we need from public sector workers and how we should reward and recognise these. At the moment, however, serious joined-up thinking about how to reform pay and benefits to get the best from public sector workers is being drowned out by the incessant, monotone noise of the deficit reduction vuvuzelas.
“The government also needs to be wary of the dangers of a prolonged squeeze on public sector pay. Keeping the lid on pay for year after year would cut costs at the expense of severe public sector recruitment and retention difficulties. This would harm the quality of public service provision as public sector employers would have to make do with lower quality staff, while history suggests that periods of tight pay restraint are subsequently followed by periods of significant public sector pay inflation when earnings are raised to competitive rates.”
Plans to raise the state retirement age:
“It is no great surprise that the Government is planning to accelerate the rise in the state retirement age. However, it is a shame that they have swerved a clear decision on the default retirement age, and have chosen instead to hold yet another consultation on its abolition. They should make their consultation swift, and move quickly to bring to an end the absurdity of enforced retirement. In tough times like these, it is all the more crazy to force people out of the labour market and into the pension claimant ranks. People who want and are able to keep working can do more to reduce the deficit than people forced out of work and into unwilling retirement.”
Hutton Commission into public sector pensions
“Plans to ask public sector employees to contribute more now towards their future pensions are nothing more than a necessary short-term down payment on more substantial reform of public sector pensions. We welcome this first step towards reform, but expect more substantial recommendations for the medium and long term from John Hutton when he reports back on his findings.
“Public sector pensions today manage the uniquely poor combination of being extremely costly, while still somehow failing, given their cost, to be used as effectively as they should to attract, retain and motivate people in the public sector. As well as addressing the costs, public sector employers need to find better ways of communicating to employees the benefits of public sector pensions.”