Austerity Comes to Britain

Written by David Frum on Friday December 2, 2011

Dagenham is an industrial suburb east of London, hard-hit by the decline of manufacturing in the United Kingdom. It was the site of tonight's Question Time program on BBC, where I occupied a chair hoping that I wouldn't get asked too many questions about the British educational system.

Question Time is staged in shifting venues across the United Kingdom in front of a studio audience, presumably representative of local opinion.

The issue dividing opinion most intensely is of course yesterday's one-day strike by public-sector workers -and the underlying issue of reform of public sector pay and pensions.

As best an outsider can tell, the issue is really two issues:

1) The UK public sector is better paid on average than the UK private sector--about 7.5% on average is the most cited figure. Pensions and retirement benefits are especially generous--and are outrunning the ability of the government to pay without forcing cuts elsewhere or else calling for rapidly rising taxes.

2) One crucial reason for the disparity: private sector pay has declined since the slump of 2008, and public sector pay has not (yet) followed it down. Britain was hit hard by the crash of 2008-2009 and has posted an even more feeble recovery than the United States.

The two issues thus unite fiscal and moral questions--not only how benefits commitments are to be financed, but also whether the public sector should be protected from the pain suffered by the private sector. British public sector unionists make a claim that would seem recklessly audacious to their American counterparts. They suggest that the public sector should provide a model for the private sector, act even as kind of a leading edge of the British labor market. It's possible that the recent Labour government inwardly accepted this view.

Labour supported a large expansion of public sector employment, up 16% between 2000 and 2010.

But the real clue to what was going on comes when you disaggregate that 16% figure by region. In the 2000s, Britain benefited from a financial services boom headquartered in south and east Britain. For the rest of the country, however, the Tony Blair years were not times of prosperity. In those regions, the heartland of the Labour party, the Tony Blair-Gordon Brown governments substituted public-sector employment for private sector job creation.

During the finance-led prosperity boom of the last decade, the previous Labour government helped recovery and regeneration in the older industrial regions of North of England, Scotland and Wales, in part by re-distributing tax revenues from London and the Greater South East, in the form of increased levels of public sector employment. As a result, in many of these localities, net job creation has largely been state-sponsored, with private sector activity also, to some degree, dependent on public sector contracts. Accordingly, many parts of the country have become strongly reliant on redistributed state funds and thus will be hugely vulnerable to any planned cuts.

In parts of the North East, for example, close to half of all employment is in the public services sector. .... Tyne and Wear, Merseyside and Humberside are all highly dependent on the state as a significant source of employment.

Now the reckoning has come.