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Jul 5, 2017

Theresa May Defends Public Sector Pay Cap Under Pressure From Labour - July 5, 2017: The Guardian | Business



theguardian.com
 
Peter Walker

Theresa May raised the spectre of a Greek-style economic collapse if Britain fails to press ahead with tackling the deficit on Wednesday, as she was challenged repeatedly by Jeremy Corbyn over the public sector pay cap.
With intense political pressure on the prime minister – including from her own cabinet colleagues – to ease the strain for cash-strapped public servants, including nurses and teachers, she warned MPs about the risks of loosening the purse strings.
“This is not a theoretical issue. Let us look at those countries that failed to deal with it. In Greece, where they have not dealt with the deficit ... What did we see with that failure to deal with the deficit? Spending on the health service cut by 36%. That does not help nurses or patients,” she said.

Comparisons with Greece were repeatedly used by George Osborne in 2010 to justify public spending cuts, as riots erupted on the streets of Athens over the stringent bailout conditions imposed by the International Monetary Fund and the eurozone.
But the analogy represented a significant ratcheting up of the pro-austerity argument from May.
A Conservative spokesman emphasised remarks afterwards, saying: “There are siren calls from Labour to abandon any kind of fiscal restraint whatsoever. What happens, we’ve seen as a case study, is what happened in Greece.” He added: “I think she was suggesting if Jeremy Corbyn’s Labour party got the chance to impose its fiscal policies on the United Kingdom that is a very real threat.”
A spokesman for Corbyn described the claims as “preposterous”. “The situation in Greece is tied up with the eurozone and the management of the eurozone banks – we’re not remotely in that situation. Our manifesto and our pledges were costed, unlike the government’s,” he said.
Many Conservative MPs have returned to Westminster after the bruising election campaign, determined to urge the government to allay some of the concerns about spending cuts they heard from voters – including on school funding, as well as public sector pay.
Some would like to see May give a clear signal before parliament breaks up for the summer recess on 20 July that the 1% across-the-board cap will be lifted.
The chief secretary to the Treasury, Liz Truss, must write a letter to the independent pay review bodies shortly, setting out their remit and would be expected to reinforce the 1% cap.
The Labour leader used all his questions to the prime minister at their weekly head to head to pressure her over issues of pay, accusing her of presiding over “a low-pay epidemic” in the UK, and claiming she had presided over “a week of flip-flopping and floundering”.
May outlined the process by which a series of pay review bodies recommend rises for NHS staff, teachers and others, and said the government would “consider those reports very carefully”. But she added: “We will always recognise the need to makes those decisions against the need to live within our means.” Both she and Corbyn valued the contribution of public sector workers, May said but added: “The difference is, I know we have to pay for them.”
Several other ministers and aides went on to echo the comparison with Greece in a sign there is a concerted effort by the Conservatives to stress their desire for “sound money” and attack Labour on the issue of economic competence.
Truss said the cap on public sector pay was the “responsible thing to do” in response to an urgent question from Labour.
Philip Hammond, who has admitted that he would have liked the economy to play a more central role in the election campaign, has resisted pressure to ease up on austerity, warning his cabinet colleagues that money to fund extra spending pledges would have to come from cuts elsewhere or tax increases.
One suggestion is that the Treasury could cancel planned tax cuts, including to the rate of corporation tax, as the Labour manifesto mooted. At 19%, the tax is already one of the lowest among major economies, but it is due to be reduced further, to 17%, in a move introduced by Osborne.
A thinktank, the Institute for Fiscal Studies, calculates that scrapping the public sector pay cap altogether, as Labour would like to do, would cost government departments and local government £6.3bn per year compared with the government’s plans – increasing to £9.2bn per year by 2021–22.
Corbyn will give a speech to the British Chambers of Commerce on Thursday, calling for economic reform – including a greater role for the state in developing and promoting new technologies, to prevent another “lost decade” of weak growth.
He will argue that technological development, “can’t be left to the market”. “Technological change, from automation to decarbonisation, means that many jobs and industries will disappear or shrink in the coming years and decades. But I am not one of the doom-mongers, who believe that will inevitably herald an era of mass unemployment.
“At every stage of economic and industrial history, jobs, industries and skills have been lost, replaced and transformed. But whether that happens at huge social cost, as it did, for example, in the early days of the Industrial Revolution and the Luddites, or is embraced and benefits everybody, depends on managing and planning for technological change. We can’t simply leave it to the market.”