Emergency Budget: feedback from employment experts

The government needs to be wary about a prolonged freeze on public sector pay and the impact it could have on retention and recruitment, employment experts have warned.

In the emergency Budget, outlined earlier today, chancellor George Osborne announced the public sector pay freeze – due to start in April 2011 – will now be extended to 2012, and will cover all staff earning more than £21,000. Those earning less than this threshold will be paid an extra £250 each year during the freeze.

But Charles Cotton, rewards adviser at the Chartered Institute of Personnel and Development (CIPD), said: “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.”

Roger Seifert, professor of industrial relations and HR management, warned: “It may be hard to see how all this Budget will work out in terms of growth and jobs, but the incomes policy for the public sector will lead to what has happened before: distortion in recruitment and retention; problems with promotion and internal labour market mobility; more wrong people in the wrong jobs; lower productivity; and a likely wave of strikes by next summer, especially if inflation remains above the 2% target.”

Stephen Moir, corporate director of people, policy and law at Cambridgeshire County Council, expressed concern that the pay award for staff earning less than £21,000 would “erode pay structures further” in the public sector.

He said: “While a pay increase for the lowest-paid workers will no doubt be welcomed in many quarters, this equally erodes pay structures further due to ‘bottom loading’, and the longer-term impact will need to be considered carefully. We can’t have another ‘boom and bust’ approach which leads to public sector catch-up awards again once we’re out of recession.”

But Graham White, HR director at Westminster Council, said the two-year pay freeze could help to minimise redundancies.

He said: “If we can have 24 months’ stability on public sector salary costs, this will ensure redundancies remain at a realistic level, while the support for the lowest-paid public sector workers will help with front-line morale and recognition of their contribution.”

Consultation on the default retirement age (DRA)

Cotton added it was “a shame” that the government had avoided making a clear decision on the removal of the DRA, instead opting for another consultation on whether to phase it out.

“They should make their consultation swift, and move quickly to bring to an end the absurdity of enforced retirement,” he said. “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.”

Growth forecasts and jobs

The CIPD also warned the government’s growth forecasts “will prove too good to be true”, and measures to tackle the deficit will push unemployment towards three million.

Osborne predicted the UK economy will grow by 1.2% this year and 2.3% next year, and rise further to 2.9% in 2013. But he warned by 2014 and 2015 growth would dip again to 2.7%. He added unemployment would peak at 8.1% this year.

John Philpott, chief economic adviser at the CIPD, said: “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 three million (10%) by the time Mr Osborne’s measures take full effect. This will add to public borrowing and debt, not reduce it.

“The 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.”

Ian Brinkley, associate director at The Work Foundation, added: “The assumption that big falls in public sector employment can be plausibly absorbed by the private sector still has to be tested.”

Mervyn Dinnen of Courtenay HR consultancy questioned whether the Budget would help to create demand for services and goods in the UK, and was concerned that the measures would not lead to job creation. “I can’t see what in the Budget creates demand, hence will create jobs,” he said

Meanwhile HR recruiter Ortus has warned the increase in VAT from 17.5% to 20% next year will cost the country approximately 201,000 jobs.

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