Responding to reports that the Treasury will announce a public sector pay freeze in next week’s Spending Review, Professor Len Shackleton, Editorial and Research Fellow at the free-market think tank the Institute of Economic Affairs, said: 

“Every 1% increase in pay costs the taxpayer around £2 billion, and even with a freeze on pay there will be an upward drift in spending as a result of new hires, pay increments and promotions. So it is understandable that in any financial crisis a freeze in pay is the first recourse of Chancellors.

“This is particularly appropriate today, at a time when many people in the private sector have suffered major pay cuts and hundreds of thousands have lost their jobs. The unions may object, but any attempt to take industrial action at the moment will be exceptionally unpopular with the bulk of the population.

“Nevertheless a freeze is a blunt instrument and will suppress pay in areas of shortage where it probably needs to increase. In the medium term the government needs to have a much more selective approach to public sector employment and cut out jobs which add little of value to the taxpayer. A fresh look at foreign aid is long overdue, and many middle-manager roles in the civil service, education and the health service are likely to be surplus to any real requirement.

“More generally, public expenditure should be concentrated in those key areas where private enterprise cannot function: defence, law and order and the relief of serious poverty. A genuine reforming government would consider whether our massively overstretched state should retire from many areas where it has spread its tentacles in recent years.”

ENDS

Notes to editors

For media enquiries, please contact Emily Carver, Head of Media, on 07715942731 or ecarver@iea.org.uk.

Professor Len Shackleton is available for interview and further comment.

For further IEA reading on public sector pay, click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.