UK Pre Budget Report: A budget for jobs?

UK Chancellor Alistair Darling’s British Pre-Budget Report included a number of initiatives which will affect the employment market. But are the overall measures positive or negative on employment?

UK Pre Budget Report

The measures announced were:

• All national insurance rates to rise by a further 0.5% from April 2011, raising £3bn a year. NI is a virtual tax on employment affecting employer and employee. The rate rise takes the effective tax rate for those earning over £7000pa to 32%
• Basic state pension will rise by 2.5% in April 2010
• Child and disability benefit to rise by 1.5% in 2010- why do I mention this? It is key to working women
• Contributions to public sector pensions to be cut by £1bn a year- and I though we had a burgeoing pensions problem?
• All public sector pay settlements to be capped at 1% for two years from 2011
• Under-24s to be guaranteed work or training after six months out of work – brought forward from April 2010 to January 2010
• Training or education guarantee for 16 and 17-year-old to be extended to 2010 – brought forward from April 2010 to January 2010
• £160m investment in low-carbon and renewable projects

A budget for jobs?

The key direct employment initiative is that for the Under24′s, which together with the initiative brought forward for 16-17year olds will attack the now 1million under 24′s who are unemployed in the UK. The offered work or training and its quality is a fair debate, but it is at least positive.

The negative is that associated with the presently bloated public sector pay bill. Much like an proverbial elephant in the room problem, everyone knows that the public sector budget must be cut post a 2010 election, which must relate to job cuts. Secondly, a nominal 1% pay rise for all ignores the number of low paid workers in the public sector. Both the Conservatives and the Liberal Democrats have addressed this issue, by freezing upper three quartile pay, while addressing lower quartile to assure voters it will keep up with inflation – effectively the same cost, just a different spread of the budget.

Think about this quandary in public sector pay. Cleaners are the lowest paid workers in most work places, and yet they are key to MRSA initiatives in hospitals. Take Darling’s 1% proposal against that of the Tories or LibDem’s, and either you have fewer cleaners (not seen as frontline services), or and very low paid cleaners.

The financial summary of Darling’s budget is that for 2010/11 is that he is saving £19Bn, and spending £22Bn. I agree with many commentators, that is seems a budget for an election, over one which is sustainable and hence job creating.

Irish Budget cuts jobs

Mean while, in the Republic of Ireland Finance Minister Brian Lenihan announced pay cuts for public sector workers, as part of efforts to achieve savings of 4bn euros ($5.9bn; £3.6bn). Public servants will face pay cuts, ranging from 5% on those earning 30,000 euros to 15% on those earning more than 200,000 euro, which are summarised as 1bn euros reduction on the public sector pay bill. Taoiseach Brian Cowen will have his pay reduced by 20%. “Those at the top will lead by example,” Lenihan said. Richard Bruton, finance spokesman for the opposition Fine Gael party, called the budget “jobless and joyless” – oh how right in the short term!

UK Pre Budget Report: election summary

I like and applaud the initiates Alistair Darling took with tackling under 24 unemployment, but doubt who ever is in power post a 2010 election that this budget will ever be implemented. A budget for sustainability and jobs is what is required – this is not it.

Good Luck!

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Sunday Thoughts: Wage Regulation?

There is a lot of politically driven banter in the Sunday newspapers this week of regulating the wages of bankers. It is clearly a typical August holiday slow news weekend, so the editors pick up on anything and everything: anyone seen a juggling badger story yet?

But as even Westminster is dead at this time of year, were it not for Alan Duncan dragging MP’s expenses back to the front page, the current pre-2010 election banter is about wage regulation for bankers.

It started on Friday with the Conservatives shadow Chancellor George Osborne stating he would cap bankers wages, and has followed through in features and editorials written by Chancellor Alistair Darling saying he is already doing so. Some of the more business orientated publications have also picked up on the issues that: six Barclay’s workers are due to split a £30M bonus in the next few weeks; that the 70% UK Government owned Royal Bank of Scotland is head hunting a rivals corporate banker with a £7M golden hello; or that total banking bonuses paid out so far in 2009 amount to £7.6Bn

Where does this all end? In failure is my thought.

Wage Regulation

Wage regulation focuses on how, and how much people are paid. Until the rightful introduction of the minimum wage – effectively below a certain level, what we are really saying is that the state is happy to directly subsidise industrial activity through state benefits: not what Nye Bevan had in mind at all; wage regulation focused on the structure of what came out of your wage packet in what order and to whom it was paid: tax, national insurance, pension, extra.

The first change in modern UK wage regulation was in effect the result of the Maxwell affair, which stated how long companies could hold pension contributions before they were passed to what form of independent body. He may not be popular, but the litigious Maxwell’s legacy on UK plc is wide and generally good: we learnt with hindsight from the bad, and made not just right, but better. The second development was the National Minimum Wage Act of 1998, which was decried by certain employers as job destroying, but in actual fact has created jobs. There are still unfortunately regular court cases, normally associated with certain sectors including Gang Masters where the debate is focused around those infamous “legitimate” deductions, but they are getting rarer.

Maximum Wage?

The difference in the current debate in on the maximum possible wage, and specifically on one sector: bankers. Yes, the banks did wrong and caused much of the recession and need banks need regulation, but I think individual wage capping is a poor precedent, and here’s why:

1. Where individuals are paid by private companies and organisations, should we publicise wages? Rightfully pay disclosures have to be made by all employers to HMRC, but should it be every citizens right to know everyone else’s income? It is in effect a human rights issue
2. Setting maximum earnings in one sector will lead to maximum wage regulations in other sectors. It’s bank now, why not company directors next? In an international world, simply unless regulation is universal, then companies and individuals can take flight and go some where else. Maximum wage regulations and high taxes simply make moving to sunnier climates look more acceptable credible
3. What does a maximum wage regulation say to the public at large, let alone entrepreneurs? I think it says: don’t work, get to a level then go somewhere else

Political Wage

I don’t think the answer to the problem here is wage regulation, I think its the politically right answer right now to a closer question: who wins the 2010 UK election.

The regulations Darling was originally proposing have been so watered down in discussion with the banks, that they are paper thin: they don’t describe maximum wages, they just allow him to write a Sunday newspaper feature which says they do. In actual fact they are focused now not on individuals, but on the banks themselves and how they will pay their employees: a better choice for longer term national stability. As Maggie Thatcher learnt with the pole tax, regulating individuals is almost impossible; companies, much like houses, are fewer and slower moving targets. So just manage and regulate them properly.

The problem here is, and hence why Osborne is taking the attack, is that the Government fluffed to put it slightly the controls they put in place to manage their investments in UK banks. They wanted stakes and hence control in all five main UK banks, they got control of one and a big stake in another: and even with those, they can’t seem to manage to get Bank of England money through to high street lending to revive the economy.

Maximum wage regulation will never work: unless its global, individuals will flight. But Sunday newspaper headlines can presently be grabbed by bashing the Porsche driving City banker set. Do I want the future of my country defined by a political skirmish, associated with political posturing to win an election to decide who makes the cuts in national services; or do I want a real debate about jobs, investment and economic revival?

In starting such a debate, one party probably proves their Chancellor designate is not right to live in Number 11 Downing Street; in countering the debate, the current Chancellor shows he really just a politician. The rest of us just shake our heads and wonder what either of them will do when unemployment rises above 3million. That’s the real world question, and when 20% of sub-25′s are unemployed, where I want the real employment debate now, and through the next government.

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