A Pay Freeze?
I have been reading Audit Commission Chair Steve Bundred’s thoughts on reducing debt.
It has been left up to a civil servant, Steve Bundred, chief executive of the Audit Commission, to name a sum. He said yesterday that the national debt will require a £50 billion package of spending cuts and tax rises. Health and education could not be ring-fenced – and a pay freeze should be imposed on six million public-sector workers.
By my count that would be a structural deficit around 3.5% of GDP – possibly a little low.
But the key question for me is, when does Mr Bundred suggest we make these £50bn of cuts?
If we make them this year we risk an exact repetition of mistakes made seventy years ago – the dreaded double dip recession. One of the most important lessons of the depression is that fiscal and monetary stimuli should not be withdrawn too quickly.
Let me be clear on this. If we announce a public sector pay freeze starting this Summer, that would be a colossal policy error. A £5bn reduction in public spending, in the context of a deficit of nearer £200bn is small change in terms of savings. In terms of the effects on growth it is potentially much bigger. And the best way to pay down debt is growth.