Recovery efforts being hampered
The Government is its own worst enemy. On the two key areas of current policy -- stabilising both the banking sector and the public finances -- its best intentions are fatally undermined by a combination of timidity and incompetence.
December's Budget marked a long overdue starting point on the road to economic recovery. It did not shirk from the responsibility of cutting government spending and its credentials as a genuinely tough Budget were significantly enhanced by the Government's refusal to strike a last-minute deal with the public sector trade unions that would have substituted fudge for pay cuts. It was a brave decision, because it risked confrontation with the trade unions, and a necessary one because serial increases in public-sector pay and numbers over the past 12 years were far in excess of what this country could afford.
And then on Christmas Eve, when the Government's advisers calculated that it would draw the least media attention, it was announced that a sweetheart deal had been negotiated with the very highest paid members of the civil service. Using a mechanism of which Sir Humphrey would have been proud, the Department of Finance scaled back the pay cuts of the best paid and allowed the trade unions to claim the moral high ground. Why should the lowest paid public servants suffer proportionately greater pain than those at the top? It is a fair question and one that the Government should never have allowed to be posed. Its original pay cuts on high earners should have stuck -- and indeed could have been far harsher. The arguments that have been forwarded to justify the retreat have further damaged the Government's credibility, and further strengthened the hands of those who resist essential cuts in spending. It was a damaging own goal.