Budget 2012: A local wage for local people

George Osborne has delivered his third budget in the two ways that Mike Campbell went broke in Ernest Hemingway’s The Sun Also Rises: ‘gradually and then suddenly’. It was leaked studiously over the course of the preceding days, ensuring that much of Osborne’s speech was not much of a surprise, but unfortunately for the Tories they proved less adept at controlling the news cycle after the event – hence, presumably, the bizarrely timed announcement about minimum pricing for alcohol.

The first I heard of the budget’s substance (except for the perennial chatter about the 50p tax rate) concerned the mooted end to national parity of pay in the public sector; this might be done by freezing pay in certain areas – i.e. reducing pay in real terms – beyond the end of the general freeze already in place. The theory seems to be that this will make local firms more competitive in the jobs market and stimulate a private sector-led resurgence in the fortunes of poorer parts of the country.

You’d have to have a very short memory indeed not to recall a time when there was a large number of cheap and newly-work-hungry people to be hired in, say, the North East, and yet no ensuing economic miracle. It just doesn’t work like that. There’s every reason to believe that, without state intervention, rich cities will always suck up and keep the great majority of a society’s educated youth, which perpetuates regional disparities. Nobody who grows up in London moves to Great Yarmouth to work for a hedge fund, but you can bet it (occasionally) happens in reverse.

How should the Government address this? Well, it’s probably increasingly difficult in a services-based economy with a mobile population. In the past, an area with low pay would have been an attractive place to build a factory; then it would have been an attractive place to put a call centre; but with many of those jobs going to the developing world, the state needs to actively stimulate regional economies. One obvious sector to pursue would be green energy – a high-tech growth market that has the added bonus of being ethical – but the Tory drive to cut the deficit means both that new investment is in short supply and that our world-class existing intellectual infrastructure (i.e. the university network) is having the rug pulled out from under it.

But one thing the state can do is pay people a decent wage. Much is made of the disparity between public and private sector pay, as though public servants gleefully break into vaults at GlaxoSmithKline and raid the piggy banks, but the truth is it’s not a fair comparison. Public sector workers are more highly educated than private sector workers, and their equivalents in the private sector often earn orders of magnitude more. But even that is missing the point – if public servants earn more than private sector workers, it’s not because the former earn too much but rather because the latter earn too little. The only way to combat that sustainably is to stimulate the economy, and in poor areas that often means – you guessed it – state investment.

But even if I’m right, it might not change Osborne’s mind. Perhaps the real motive for introducing regional pay is to break national unions and replace them with fractured, fractious shouting-houses. It wouldn’t surprise me.

David Jones is a member of the Young Fabians Future of Finance Steering Group