The leading business group has demanded an immediate pay freeze in the public sector and a reform of public services to tame the economy.
The CBI has set out its plans for the new government to get public finances under control in its new report Time for action: Reforming public services and balancing the budget, which calls for a public sector pay freeze and private sector growth and job creation.
On the day inflation reached its highest level for 19 years, the report claims that freezing the total public sector pay bill from 2010-11 for two years through selected pay and recruitment freezes could save £18bn, but it also maintains that far bigger savings could be achieved through a fundamental re-shaping of public service provision, including using the private and third sector to deliver better outcomes more efficiently.
The CBI argues that unlike the private sector, where pay freezes have been commonplace during the recession, public sector pay has continued to increase. Average pay grew by 2.8% in the public sector in 2009, while it fell by 0.9% in the private sector. It also advises a caveat from the pay freeze for front-line staff and the lowest-paid public sector workers.
John Cridland, CBI deputy-director general, said: “The new government will need to show strong political will to contain public sector labour costs. It needs to slam on the emergency brake now,”
Richard Lambert, CBI director-general, added: “Experience suggests that the best way of bringing down a substantial deficit without damaging growth is through spending restraint rather than raising taxes.”
Commenting on the CBI’s report, TUC general secretary Brendan Barber said: “This is special pleading from the CBI, who is calling for the full brunt of spending cuts to fall on public sector staff rather than the billions spent by government on private sector goods and services, such as consultants. The economy is still very fragile and any cuts could send us into a double-dip recession.”