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Pay cuts versus job losses

Robert Peston | 09:08 UK time, Thursday, 11 December 2008

When workers at Corus and JCB offer to cut pay to preserve jobs, it's legitimate to ask whether a rise in inflation was ever the kind of serious threat it was perceived to be earlier this year by the Bank of England's Monetary Policy Committee.

Corus Llanwern plant, South WalesThe MPC delayed cuts in interest rates, because it feared that rises in energy and food prices could feed through into higher endemic inflation through pressure from employees for compensatory pay rises.

There were plenty of voices outside the Bank of England questioning whether this was a well-grounded fear, given that the Thatcherite and post-Thatcherite reforms of the labour market have decisively tilted the balance of power in the workplace away from collectively organised employees towards employers.

However, on the MPC itself, Danny Blanchflower was a lone voice arguing that the inflationary risks were much smaller than the deflationary pressures of an economy slowing down fast.

Blanchflower has won the argument by knockout - though he may regret it, in that there's plenty of evidence that our economy is even weaker than he may have feared.

The pressures of frequently being the minority of one on the MPC were not easy for him. And he's decided that he's had enough of this particular game of soldiers, and he's therefore standing down in May.

Which some will see as something of a loss to the quality of the debate on the MPC.

As for the implications of the offer by Corus's trade unions of a 10% across-the-board pay cut for 25,000 employees, they seem to me to be significant.

The hope of the unions is that such a big reduction in the wage bill of Corus - albeit a cut that would last for just six months - would avoid the need for the Llanwern plant in south Wales to be closed.

And the unions would hope that those who manage Corus would also take a 10% cut, in an act of solidarity.

Their initiative is redolent of a collective determination to avoid unnecessary hardship in the very painful recession that appears to have gripped most rich countries including the UK in a particularly severe way.

Their behaviour is consistent with the possible re-making of capitalism I described in the note I put out on Monday (see "The New Capitalism").

But the initiative will be derided by the red-in-tooth-and-claw managers of the 1980s and 1990s, who would see it as a Micawberish fudge to delay a necessary permanent reduction in the overheads of a business that needs to adjust to harsh new economic realities.

So it may not be a life or death moment for the "sauve-qui-peut" dogma that has ruled in boardrooms and also conditioned governments' industrial policies for almost 30 years. But it's certainly a significant moment.

UPDATE, 10:13 AM:

Michael Leahy, general secretary of the Community union, said this to Radio Wales:

"Any proposals which have come forward have done so as consequence of proposals that have been put by the company. We've commented on those and put forward a number of alternatives and we haven't reached a conclusion.

"They've put a number of proposals including a general pay cut. They've not even suggested this is an alternative to reductions in the workforce or closures, but we know however if the order book stays as it is for a long period of time, then we know structural changes may need to take place in Corus."

He said members would be informed a range of options were on the table but they and Corus were committed to avoiding closures and job losses, if at all possible.

"We realise that there's been a global downturn in production of steel and people wanting steel - in fact we realise there's been over 40% reduction in the order books for steel in Corus UK and Europe-wide.

"We've been discussing a range of possible arrangements to ensure we have a sustainable industry going forward and to protect the interests of our members - they have mortgages and commitments. We didn't want a dramatic impact on their jobs or ability to earn as a consequence of this crisis."


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  • Comment number 1.

    My money is on permanent job cuts and no reduction in pay for the management.

  • Comment number 2.

    Dear Robert
    The labour party are in the "OLD PERVERBIAL,----?
    Cancellation of the Euro Fighter, and now the Carriers, and a Major Major Defence Buget Scandal, ie Overspend, this is serious, and it will affect jobs.

  • Comment number 3.

    Not too sure on your logic here Robert. Pay cuts were often advocated as an alternative to job losses in previous tough times, and even not-so-tough. There was less realism from workers then, though.

    It is unlikely that you, me or anyone else outside the business actually knows the economics of the plant in question. It maybe that the unions are correct in that saving what could be as much as £25 million from the cashflow could be the difference between closure and keeping the plant running until the economy recovers. Corus has been part of a lot of takeover activity in the last decade and could well have a lot of debt to service.

    It is also unlikely that the solution is merely "cutting overheads", which typically only form a small part of the costs of a large capital plant like a steelworks. Costs of direct labour would not in any event count as overheads.

  • Comment number 4.

    How about MP's and Ministers doing the same?

  • Comment number 5.

    It may be a reasonable offer, combined with natural wastage & perhaps some voluntary redundancy it could save jobs albeit a plant may need to run at a smaller scale.
    It is difficult to judge without knowing all the figures of the business concerned.

  • Comment number 6.

    Don't forget to tell the CSA about a change of circumstances. I could not tell them that my income was reduced by £6,000 per annum as the financial data was not available until 10 months after the end of the tax year. They refused to make the adjustment for another 6 years, when they did they backdated it to the date they were originally informed, not the date of the income reduction. When I originally informed them of my reduction in income they said they never reduce assessments unless you go on the dole.

  • Comment number 7.

    Yes, agree with reforse (post#1). It will be pay cuts AND job losses. Tata bought corus is make as much money for itself as possible. Recession provides a golden opportunity to cut costs to increase the bottom line in years to come.

  • Comment number 8.

    "it's legitimate to ask whether a rise in inflation was ever the kind of serious threat it was perceived to be earlier this year"

    OK, it's fair enough to ask.

    But in defence of the Committee, this economic collapse has happened extremely suddenly, andcaught out a lot of front-line industrial firms, never mind the Committee. For example, taking one of the companies you mention, Corus was reporting rising turnover, deliveries, earnings and profits in it's August accounts, and as recently as September was still posting price increases for its steel.

    A mere two months later it was announcing plant shut-downs for the winter periods.

    This collapse has caught almost everyone out.

  • Comment number 9.

    This move by Corus is significant because it highlights a crucial difference that exists between two groups - those who believe in the survival of the fittest, and those who believe in adaptation.

    It would help if an awareness grew in the way Nature has a margin for intelligent adaptation and co-operation that the present, obsolete capitalism has denied for too long.

  • Comment number 10.

    JCB tried this and ended up with the Job losses anyway. Corus may be different becuase once the (over)stock(ed) levels fall off enough into early next year some orders will come back.
    The New capitalism might well go bust before it gets going though. Inflation is going to be a real problem with the quantitative easing

  • Comment number 11.

    You write
    "When workers at Corus and JCB offer to cut pay to preserve jobs, it's legitimate to ask whether a rise in inflation..."

    I don't really follow your argument.

    The workers have a stark choice - a 10% pay cut or a 100% pay cut.
    I don't think inflation comes into their equation, and I don't see why it needs to come into your sentence either...

  • Comment number 12.

    I would like to wish these guys good luck, and i fear they may need it.

    At the moment in business everyone is very nervous, you can sense it, its like a bad smell thats not very strong, but you can smell it.

    I think that the failure of Wooolies to find a buyer is going to increase the pressure on other retailers.

    I was in our local national chain Diy store last night and i have to say that it was direly empty and has been everytime i have been in lately.

    It would not surprise me if they and other big names especially one of the big electricals went down after christmas.

    As to the bosses not taking a pay cut witht their staff, they would have to be mad not to. Look how the US car firms directors were slated for turning up in their corporate jets, the days of one rule for one are well and truly over.

  • Comment number 13.

    As I understand it – the biggest investors are the pension funds – investing for us – (my pension on the line here)

    – so why do we continue to allow huge salaries and bonuses at the top when the man on the shop floor is either taking a pay cut or losing his job –

    Does this mean I am contemplating a socialist state of control – no – but clearly sauve-qui-peut is no longer an option.

  • Comment number 14.

    From Mr Peston:
    "Their initiative is redolent of a collective determination to avoid unnecessary hardship in the very painful recession that appears to have gripped most rich countries including the UK in a particularly severe way."

    Again Robert, you have called into doubt Gordon`s Brown world-saving powers.
    It seems Gordon "trillions for the bankers" Brown`s reputation for fiscal prudence is falling apart faster than a cheap suit.
    Even the state organ`s business front man is jumping ship!

  • Comment number 15.

    It'll be interesting to see what happens with the public sector pay over the coming years.

    Another point, slightly off topic, is that the Treasury Select Committee is discussing on Monday:

    "1.11 The role of the media in financial stability and whether financial journalists should operate under any form of reporting restrictions during banking crises."

    I hope that the BBC is preparing a submission to the Committee on this matter, as it sounds like the start of censorship to me.

  • Comment number 16.

    Dear Robert

    I totally agree with *6,
    The CSA are a major arrogant vindictive, and Discriminative organisation who use Government Bully tactics against the individual

  • Comment number 17.

    As we approach the annual poll tax hike, how about a 10% pay reduction for the teachers,police,firemen,doctors, nurses etc. etc.? The gap between public and private sector is now unsustainable.

  • Comment number 18.

    The work-force in industries such as steel-making in this country which have gone through the trauma of restructuring carry that dire memory within its culture. This is why there is a determination to bear the pain collectively as otherwise each man is pitched against the other as they struggle to survive.

    We should all learn from this example and adopt it as a standard.

    This is why I have complete contempt for the Masters of the Universe and the newly declared Saviour of the World who have caused this recession (slump?) by their incompetence and greed.

    What is needed in this country is not to look for examples of individual genius that will save the day. We don't need great leaders with huge egos to be massaged. We need simple folk who know what they love and love what they know.

    This country now needs to accept that we must all stand together and deal with the distress now arriving at homes close by as a common difficulty and adopt our own collective strategies to cope with it.

    From those simple answers will come the means to resolve the major problems. It will take time and take courage.

    The people of this country have proved time and again that courage is its coin. All we need is the time.

  • Comment number 19.

    It baffles me why wage reductions rather than redundancies are not the order of the day at the banks too.

    After all, a 10% or even 25% reduction in all but the most menial of bank salaries represents a wage level which a large section of the population would happily live - or at least get by on.

  • Comment number 20.

    The real issue is in relation to executive pay.

    There has obviously been derision about the bonuses they earned in the past decade but the basic salaries rose significantly as well based on the premise of growth which we now know was false. The real issue is when will these executive salaries fall to reflect the new world.

  • Comment number 21.

    It seems to me that there are two ways we can collectively tighten our belts:

    1. Ruthlessly cut jobs so that the poorest pay (as usual) but the richest carry on creaming what they can off the top (i.e. the Tory policy)

    2. Manage reduced salaries and headcount in a way that eases the downturn by everyone taking a smaller hit now rather than a bigger hit later due to further reduced tax revenues and high unemployment.

    Mass job cuts is not good for the economy, whatever die-hard, neo-liberals might say, and is even worse for society. A whole generation has grown up to be permanently out-of-work because of Tory economic policies of the 80s. Wasted lives and wasted opportunity. Let's not repeat that disastrous economic policy that ignores human psychology and human nature.

    If individuals take home less pay and work less hours, there is the opportunity for those extra hours to be converted to the social and economic good of the nation. What we need is a sense of social cohesiveness: the goal of economic stability, maybe not today or tomorrow, but within 5 years if we all keep our nerve.

    Cameron would rather conserve the position of the rich, the bankers and merchants who got us into this mess in the first place at the cost of the hard-working. He'd ruin the country for a bit of political power.

    Yes, we need to avoid companies paying for people to do nothing - I'm not arguing for a return to profitless inefficiency. But there is a middle ground - an old-fashioned liberalism - that doesn't trust markets, but makes the most of them for the social good. That should be the goal of the next government. Not balancing the books, but balancing the medium- and long-term with the short-term, not in terms of the economy alone, but in terms of the social good - that is the good of the majority of individuals.

    Hard work will get us out of this, not worklessness.

  • Comment number 22.

    Bet you won't read about this in the tabloids.

  • Comment number 23.


    Oil price rise and it’s impact on all prices = inflation tendency.

    Oil fall from 147 dollars to

    Under 50 dollars


    Lower pressure on all prices

    The sooner we move from oil-based economy the better

    Maybe the US will get its act in gear with Obama

    Nuclear power = more stability in energy prices

    Also we are held to ransome by GAS

    Which also rose


  • Comment number 24.

    If the problem at Corus is that costs are too high then the union offer is entirely rational. But I suspect the problem is that there is simply no market for the steel. If car plants are shutting down for extended breaks and construction is faltering then who is to buy raw steel? A 10pc reduction in wage costs won't help if there's no market for the product.

    Incidentally Robert, please don't spoil an otherwise excellent post by introducing a straw man red-in-tooth-and-claw manager. If you can quote an actual plant manager then fine, but please don't follow the lazy reporting convention --- which the Today programme presenters do far too often --- of saying "opponents of the scheme are going to say...".

  • Comment number 25.

    Post 4, interesting point somehow can't see that one happening though.

  • Comment number 26.


    You ought to think about this more widely. Corus is just one (very public) example of wage cuts. And it's not just happening in the UK, eg Aer Lingus staff have just voted overwhelmingly in favour of pay/benefits cuts.

    Looked at from a macro perspective, this begins to scream deflation. It would be good to know what risk BoE/Treasury sees of sustained deflation, its impact (eg on proposed fiscal stimulus), and the steps that would be taken to drag us out of it.

  • Comment number 27.

    I read the "New Capitalism" piece on Monday and I've re-read it now. I can't see how the Corus and JCB stories are consistent with it at all.

    At a stretch, this action may make Corus a little more compatible with Chinese steelmakers and make a tiny contribution towards rebalancing UK-Chinese trade; or it may reduce the disposable income of Corus workers and therefore get them to spend less on imports. But this is on a highly selective reading!

    A more relevant factor is behavioural. There is lots of research about why wages do not generally fall when a company becomes less competitive. Neoclassical theory indicates that they should. But psychology and behavioural economics give some plausible reasons that they won't.

    So why does this effect not take place more often? And, counter to Robert's article, why was the MPC right not to rely on this kind of cut? Answers here:

  • Comment number 28.

    Post 12 re the DIY stores. Homebase's radio adverts are offering freee insurance on conservatories, bathrooms and windows to try to encourage people to buy.

    I imagine there are a lot of people who lost money on MFI.

  • Comment number 29.

    Excess production is the problem at the moment and although it is gratifying to see the workers at Corus putting job security before income, I cannot help but worry that job losses will be inevitable in any case. Look at all the products such as cars, filling showrooms, car parks and fields waiting to be sold. The demand is not there. The best that can be hoped is that if workers at Corus in the UK are flexible enough, then the plant closures will occur elsewhere.

  • Comment number 30.

    Another good article that highlights the confusing signals being given by markets, especially the collpase in yields on government bonds versus the spike in perceived credit default insurance.

    Check the article entitled: "Deflation Says Buy Bonds; Supply Flood Says Sell" by Mark Gilbert

  • Comment number 31.

    #21 : "Cameron would rather conserve the position of the rich, the bankers and merchants who got us into this mess in the first place at the cost of the hard-working. He'd ruin the country for a bit of political power."

    Utter junk! It is Brown who is wrecking the future prospects of this country with excessive borrowing. It is Brown who has been in Government these past 11 years. It is Brown who failed to regulate the banking industry. It is Brown who was deficit spending during the boom, leaving the country totally unprepared for the bust.

    The German Finance Minister is absolutely right about Brownomics - they will put a millstone round the neck of this country for decades to come!

  • Comment number 32.


    The CSA bluffed you

    I managed a reassement in 2000 going back through to 1996. they ended up paying me over £5000 all of which they had already paid out and were unable to recover from my former partner.

  • Comment number 33.

    This time round manufacturing is not a problem industry. Anyone who has managed to stay in business despite a high pound and brutal competition from China has had to be efficient and well managed. With 25% currency devaluation these industries could be very successful once the immediate crisis phase is passed. The employees are just being rational and betting on things being better in 6 months.

    The bloated problem industries this time are banking, government, law and medicine. Professionals who have been isolated from global competition and invest in property have done very well over the last few years. The government have done a very poor job of controlling staff numbers and wage inflation in the higher pay grades, although younger and customer facing staff have been treated badly. Bonuses for GPs which double pay for less work are symptomatic of an employer who does not care about cost control.

    If we could get some sense and voluntary wage deflation in the 'state sponsored' problem industries as there is in the manufacturing sector we might be able to get through this with less unemployment and less inflation. Unfortunately, the only politically acceptable way to reduce public sector pay and property prices is through inflation.

  • Comment number 34.

    And another interesting one, this time from ECB seeking to rein in market expectations of further big interest rate cuts for the Euro.

    It's a bit out of line with what's happened in Switzerland, where the central bank has become the first main one to cut rates to below 1%. Rates have been cut by 50bp to 0.5% this morning.

    Relevant article is entitled: "ECB Sees Rebound in 2009; Stark Says Room to Cut Interest Rates `Limited'"

  • Comment number 35.

    It seems that every ones solution to this is to tighten belts......

    ....... oh, sorry - with the exception of Brown!

    As we speak GB/AD will be convincing the owners of Corus to pay their staff more in the hope they'll go out and buy more goods made of steel, thereby reinflating their own market....

    Roll Up! Roll Up! Come and see Gordon Brown's 'Amazing Perpetual Motion Money-go-Round' - 'The more you spend, the more you earn!

  • Comment number 36.

    its a shame that real workers ie steel workers(people who actually do usefull work) have to take a pay cut...i would suggest people like moyles and a few more in the beeb take massive pay cuts and reduce the cost of the tax that the bbc levies on everybody. also its a sign of comman sense at last that everything doesnt have to keep going up all the time.

  • Comment number 37.

    Pay cuts were common in the thirties slump and even affected public sector workers. Corus workers are to be commended. We will only get through this without the sort of unrest that they are having Greece at the moment if some of the pain is shared. There are going to be massive job cuts and redundancies, in the city, in building and in retail. Some people have done very well out of the last few years and are very comfortable thank you. Company directors, lawyers, doctors and many professional people have seen a considerable rise in their standard of living compared to a few years ago.

    No society will last very long if it allows one half of society to be bancrupted and thrown out of their houses while the other is more than comfortable. It is no good the Tories complaining about a massive future tax burden. These are extreme circumstances and the lesson of the thirties is that government must take the lead and spend spend spend. I am no supporter of Brown and his self satisfied freudian slip yesterday about 'saving the world' only reveals his true character. I blame him more than anyone for the mess and the vast debt bubble. He is however on the right track on how to get us out of it.

    He should immediately impose a 50% tax rate on anyone earning more than 50K to help share out the pain. That way he could spend even more. He should remove VAT on building repairs for a year. He should spend money on insulating houses. He should build those aircraft carriers. He should help with retraining and getting people back into work.

    We live in 'interesting times'. There are no certainties any more. We need to pull together and help each other before we slide into anarchy. A few weeks ago we were very close to a total banking failure. Just think how long we would last if all ATM's said 'Sorry. This service is no longer available' and the supermarkets only took cash.

  • Comment number 38.

    Re: Danny Blanchflower.

    But the problem with the UK economy over the past 3 years until Le Crunch was that gov spending was unsubstainable not inflation.

    Look it is simple. Gordon Brown had a budget in 2001. He'd overspent by 2004. His solution was to spend more. 2008 the solution is to spend more.

    I don't think so. Hence run on pound. International financiers get it as do the Germans. The UK is going down the plughole. The result is going to be huge unemployment. Prior to stimulus 3-4million, after ?

    For labour voters - this is what you voted for.

    Non-labour voters bad luck but you knew it was coming.

    Remember No Free Lunch

  • Comment number 39.

    I wish the workers of Corus good luck and think they are smart doing what they can for themselves and each other.

    There is no way of knowing if the plan will work or not as we have no details of the company finances. However, what this has to do with the MPC and Blanchflower i have no idea. Corus and their order book is being affected by demand around the world and Tata has borrowed tens of billions accross its businesses on the back of low interest rates including several of our most famous car brands - Jaguar & Land Rover. Now the world economy is contracting but the debts are still on the books.

    This is all part of the same global deleveraging.

    Blanchflower was wrong all the time and following his nonsense would have at best prolonged the party a bit longer. He was a voice in the wilderness for good reason. It is because our interest rates were too low for too long that we are in the worst mess in Europe.

    Come on Robert buck up.

  • Comment number 40.

    I've copied this from my original posting on an earlier blog, as I think it's an interesting and important interview.

    Brown v Merkel appears a popular bout on here today, so check this interview in Newsweek with Germany's Finance Minister. It's worth noting that he's a member of the Social Democrats, ie ought to be closer to Brown/Darling than Merkel is.

    This is the what politicians generally should be doing/saying. I wish this guy had more influence across Europe generally. He's just so much more honest about the limit of governments' ability to influence events than GB/Ally D.

  • Comment number 41.

    Don't agree with much of your premise Robert.

    We still have a government that believes we can recover from these 30% falls in production within 12 months

    Start asking questions, we need answers so that we can discover where they expect floor will be

    Up until now the policy appears to be similar to falling from a great height and when you see the bottom we'll all take a collective leap and jump down...seems like fantasy to me

  • Comment number 42.

    I am a bit puzzled as to the lack of demand for Corus steel. In less than 4 years we are holding the London Olympics, which is a huge investment/construction project. All modern stadia are either partially or fully covered, and a typical construction will have the roof supported by steel columns and beams.

    So, the question is: where is the steel coming from if it is not Corus in the UK. If it is being imported, as a taxpayer funding this project, I would be appalled. It would be scandalous and yet another example of a government good at soundbites but useless at doing, managing or governing.

  • Comment number 43.

    Would a reduction in public sector salaries (across the board MPs!) benefit the country twice as much in that, not only would we be paying Gross less for their services, but their 2/3 Final Salary pensions (which push public sector debt in real terms well above 100% GDP) would also be reduced greatly?

    This is a question rather than a policy - I really am not sure of the veracity

  • Comment number 44.

    RP: "it's legitimate to ask whether a rise in inflation was ever the kind of serious threat it was perceived to be earlier this year by the Bank of England's Monetary Policy Committee"

    The Corus workers will certainly be feeling the effects of "inflation" as the cost of most things relative to their new income has just shot up...

  • Comment number 45.

    All companies should have a core wage base as part of its overall cost base together with a economic bonus pay structure that increases in good times and deflated back towards zero in bad.

    Use of short term contract workers that are culled at nescessary times and plenty of other schemes to help stability during rough periods.

    In the case of Corus, it should be the evaluated from the sales up rather than the costs down.

    What are the confirmed /projected sales for the next 12months?
    What are the costs?
    What is the minimum profit margin exceptable? Is it break even?
    What is the workforce nescessary to do it?

    The choice is then cull the workforce to the amount needed or split the amount available between the 25000.

    The offer of 10% is a red herring

  • Comment number 46.

    10.20am and only 29 posts, the 'Usual Suspects' must be having a long lie-in or is the blog not worth commenting on for them?

  • Comment number 47.

    32. At 10:10am on 11 Dec 2008, Pot_Kettle wrote:

    The CSA bluffed you

    They also bluffed themselves. They told me that I lost all rights of appeal as I did not notify them of the change in circumstances within 28 days. However they applied a backdated increase due to changes in tax circumstances, where I appealed both decisions.

    But at the end of the day you don't really win anything, all you to is get them to correct overcharging on top of their usual charges. i.e you have to fight to be given the most basic rights.

  • Comment number 48.

    Whilst selecting pay cuts in order to protect jobs may seem a rational and viable choice its benefits may be just short term and ultimately futile. This is not just recession it is structural readjustment which will lead to a significant downsizing before future regrowth occurs. Those companies that come through will need to be leaner and fitter ( employ fewer and better people but pay them well ). What is key is that a new and fit for purpose breed of managers and directors - and dare I say politicians - replace those that have led us to disaster with such consumate aplomp and total belief that they personally were not to blame ! Sadly at present we look like going into the future with much the same cast of jokers pulling the strings at every level. This has to change if UK PLC is to resurect itself and thrive in the future. Time for some new talent to emerge!

  • Comment number 49.

    Dear Robert.

    Irony of irony, I was actually watching you chatting to Huw Edwards on BBC News 24 about Woolowrths last night, when this chain of events started !

    finger of fate

    This is entirely relevant to Pestons blog moderators, as the story relates to Woolworths. It explains perhaps, why they've gone into administration and what God thinks about it... !

  • Comment number 50.

    Blanchflower seemed to be the only one on the MPC who did not have his head in the clouds - it is sad that he has gone, although I can understand his frustration with dealing with people who were clearly out of touch with reality.

    Investors (including our pension funds) have lost a fortune, partly if not largely due to the incompetence of the BoE's handling of the credit crunch.

    Investors have had to face reality in declining share prices, and those made unemployed to date likewise.

    It is now time for those in work to acknowledge reality as well, by accepting pay cuts as necessary, or face unemployment too. The money-for-very-little mentality amongst many people which has persisted for years (dare I give many London builders as an example) has to stop.

  • Comment number 51.

    Post 18

    Couldn't agree more

    At our Company (we manufacture & supply the construction industry) which has obviously had a major impact on orders, all staff including the MD have taken pay cuts and reduced hours, this along with other cost cutting will hopefully allow us to continue in business( for a few months at least) but without this we would all be unemployed by the end of December.

    What the country/people need to see is some well thought out plans to aid recovery, not more government initiatives that do not help most people.

  • Comment number 52.

    What a pity the public sector unions do not have the same vision!

  • Comment number 53.

    Don't forget it was Blanchflower, a consistently dove-ish advisor, who wanted low interest rates even during the worst excesses of the housing bubble.

    It is people like he who helped cause the problem. Claiming that he won the argument is like lauding an arms dealer who predicts a war.

  • Comment number 54.

    As has been said here, it seems that our government does not really grasp the severity of the oncoming tsunami.

    What is needed more than anything else is massive investment in education - Britain needs to make its population among the best, the brightest and and the most innovative in the world, not the most mediocre.

    GB & AD need to realise that there is no quick fix to this and that while they need to let events run their course, their role should be to help people pick up the pieces and rebuild a more sustainable economy funded by real growth rather than debt.

  • Comment number 55.

    # 53

    Blanchflower only joined MPC in 2006, so not sure how he could be responsible for not increasing rates from 2003 onwards, which is when the problem over too-low rates really started.

    And I think he only went into "maverick mode" in late-2007, when he became the first (correctly as it turned out) to see a link between the developing credit contraction, impact on UK house values, and a general economic downturn.

    He seems to have been much more in tune with the real economy than the career-BoE members of MPC.

  • Comment number 56.

    Where is Supercalmdown when you need cheering up with his call for a 10% INCREASE in public sector pay.

    In all seriousness, any reductions in salary need to come from the top down. It will not help the country to increase the inequality further.

    Remember the median salary in the UK is only ~21k gbp so 50% of people earn less than this.

  • Comment number 57.

    Perhaps the BoE committee needs some members who have mortgages, little savings and rely on their regular monthly income to make ends meet? For example, most of the population?

  • Comment number 58.

    It's an entirely logical step to offer to work for less and keep 90% of your wages, rather than stick to your principles and lose the lot! In essence, it's no different from a firm cutting its prices to compete in a down turn.
    It also has the advantage that the firm retains trained/skilled staff who may not want willingly to return to a firm that boots them out when it suits them.
    It also says a lot about the concern of the workforce for each other, something which many contributors to HYS could well reflect upon, mean, miserable s**ds that many of them are.

  • Comment number 59.

    any company in trouble has to cut its overheads and running costs.....SO UK Ltd must do the same, cut public sector pay, cut public sector jobs, (why do we need 650 MP's?) change the rules on the gold plated pensions, stop stupid projects like ID cards which are going to cost a fortune for little or no return, you cannot expect the private sector to take all the pain.
    Gordon's policy of ever expanding the non productive public sector has a lot to answer for, just how many Parenting Co-ordination Managers does one need?

  • Comment number 60.

    54 wrote

    "What is needed more than anything else is massive investment in education - Britain needs to make its population among the best, the brightest and and the most innovative in the world, not the most mediocre."

    Unfortunately that would mean the government accepting that some children are brighter and higher achievers than others - and that goes completely against Labour's 'social levelling' policies in education.

  • Comment number 61.

    So, Robert, interest rates have been too high for all of 2008, have they?

    How then do you view the 12% charged by our 'government' to its subject banks for their PIBS, and how on earth do you think they can pay this, increase lending to businesses falling bankrupt by the day and repay the 'government'.

    Or is it all a dastardly back-door nationalisation?

  • Comment number 62.

    # 51

    Just as a follow up, my partner's firm have done something similar. They are in the property sector, and have unfortuantely had to release about 30% of staff this year. However, they're seeking to mitigate things by agreeing salary cuts of 5-20%, as well as making no company contributions to staff pensions in 2009. Incidentally, the higher salary cuts are being taken by senior managers. She doesn't know what 2008 bonuses will be yet, but she's assuming zero across the board. If so, it means the bigger impact again will be felt by the most senior.

    I think there's rather more acceptance generally of a common interest between managers and the managed than RP cares to suggest.

  • Comment number 63.

    #43 ... what a pity that you don't understand how the public sector pension schemes work. Being "unfunded", the only difference your proposal would make on pensions would be to reduce the pension payable to those people who retire during the reduction.

    The unfunded nature of the schemes means that taxes paid now go to pay pensions that are due now ... there is no fund to call upon ... and those pensions would not change if pay for non-retired employees is reduced. So, no cost reduction there.

    Moreover, part of the costs are covered by member contributions which are based on a percentage of salary and therefore would go down if pay is reduced, leaving the taxpayer to pick up the difference. So, it would probably cost the taxpayer more in the short term to reduce the salaries of public sector workers.

    Besides, most public sector workers (excluding those at the top end and doctors) already earn less than their equivalents in the private sector. My wife (a primary school teacher) works just as hard as I do but earns about two thirds of my salary ... her compensation being that she has a much better pension scheme to look forward to at retirement than I do.

  • Comment number 64.

    How can the people of this country show our PM just what we think of his world saving policies.

    The government is out of control and far from leading us out of trouble are digging us deeper into the mire and are now even being rubbished by economists world wide.

    He has to call an election the country needs to give whoever is in charge their backing May would save a massive amount of money.

  • Comment number 65.

    35 wrote:

    "Gordon Brown's 'Amazing Perpetual Motion Money-go-Round' - 'The more you spend, the more you earn!"

    That's brilliant! What a vivid vision - encapsulates it perfectly.

  • Comment number 66.


    Another World Leader has endorsed Browns style of leadership in his own major announcement.

    It certainly makes me feel that the recession will be short lived, because Cap'n Darling said so and there's not long left in it.

  • Comment number 67.


    Given the cost of living in the UK and that simple fact that average salaries are around £24k its no wander that debt has got so out of control.

    A combined salary of £48k is simply not enough to sustain a family with two kids, a mortgage, car, provide for a pension etc. Britain is seriously overpriced compared to average earnings.

    There has to be a fundamental repricing of commodities against average salaries to enable a sustainable economy going forward.

    Perhaps joining the Euro would really help in this regard.

  • Comment number 68.

    Gladly have taken a pay cut (was on £22,000 as a conveyancer with 30 odd years experience) rather than redundancy. But no option given. I am lucky I could never afford to marry and or have children, or would be even worse for them now.

  • Comment number 69.

    Re management v worker pay

    The problem in this country (and probably everywhere else) is that salary always increases by percentages, so if you start at year 1 with a worker earning £100 per week and a top manager earning £1000 per week and their salaries each increase by 10% per annum then within a decade the manger will be earning well over £2300, whereas the worker will only be earning just over £230.

    Society cannot not allow this to continue.

    Why do we need growth year on year?

  • Comment number 70.

    The Corus union leadership should be organising strike action and demanding that the government bail out the company. Not cow towing to management offering to cut pay.

    If Brown can use tax payers money to bail out the banks and the super rich then Woolies and Corus workers deserve the same treatment. Brown got the economy in the state it's in and Corus management are responsible for it's problems not the workers at Corus.

    If New Labour keep bailing out the rich and then expecting workers to pay for the crisis there will be no alternative but to follow Greek workers and organise a general strike. Don't expect workers to pay for an economic crisis caused by neo-liberal governments and big business.

  • Comment number 71.


    Only when we see the public sector Unions accept pay cuts could we see deflation, and that is NEVER going to happen since Gordon Brown is wrongly determined to avoid deflation in favour of hyperinflation to wipe out his debts.

    I can guarantee you that next year and 2010 we are going to have a long winter of discontent 10x worse than the 70's with striking public workers, the country at a standstill, and riots Greek style, especially if the Tories win the June election and try to impose public sector job cuts. Either this or Gordon Brown will give in to his paymaster Unions, avoid public sector job losses, and as the pound crashes due to our bankrupcy we will get hyperinflation Zimbabwe style.

    At the moment it is only in the minority small business private sector that people are losing their jobs and accepting some pay cuts.

    for the true level of our National debt.

  • Comment number 72.

    Comment No4. Nice idea but.............. listen and watched the debate on the Speeker on Monday. Very Interesting.

    Harman the old Civil Rights lawyer with a smug look on her face. Never was there such a one sided debate. Then the Division, which I felt sure would bring success to Ming's motion. But no, the reason for the smug smile the Labour whipped the vote and won by 4. Bllody close in the circumstances.
    Why don't the Torys and Lib's just walk out for a couple of months. I sure it would bring down this government and show the public what a waste of time debate is when this happens.
    Sorry Iam off topic

  • Comment number 73.


    Nice post, except for the fact that the 10% wage cut at Corus is being proposed by the unions, not managers.

  • Comment number 74.

    I work in a sector where job cuts and a zero pay rise are both being enforced. But out of context that I suppose is not a very clever point. The zero pay rise is argued on the grounds that a rise the employer would rather not have afforded had recently been honoured. If it is really a matter of unadaffordable settlements, and it is the economic reality that you can duck out of a classic wage-price spiral by not having them, then NuLabour have steered us back into the politics of the 1960_70s, and perhaps the game's up!

    A pity the Shadow Chancellor has been so scathing about the Euro. For his leader that is. Some room to manoevre on that one would be a distinct advantage to him I fancy.

  • Comment number 75.

    Surely it's David Blanchflower? Danny was a (very good) footballer

  • Comment number 76.

    As I understand it there are many corus employees who would jump at the chance of redundancy. The age profile across corus operations has steadily increased since privatization all those years ago. Some of the men on the plants are 'beyond retirement' age and many others are close enough to retirement with reasonable pension pots to be able to take 'early retirement' by choice. Part of the problem for Corus is the poor quality of their middle and senior management, past and present. The workforce have been suffering for years a slow 'death by a thousand management initiatives', which has made doing the job on the 'coal-face' very difficult. If it were not for the glut of cheap money over the last few years these sorts of problems would have emerged sooner than they have. As for 'sharing the pain' of any pay reduction: it's unlikely. There's a hard core of macho management sentiment in the company (a legacy of past 'struggles') which will fight any attempt to undermine their pay and perks.

  • Comment number 77.

    56. At 10:52am on 11 Dec 2008, reforse wrote:

    "Remember the median salary in the UK is only ~21k gbp so 50% of people earn less than this."

    Simply because the median salary is "only 21k" it does not mean 50% of people earn less than this at all. You also need to take account of part time work which distorts the median salary picture - 18K is a rubbish income for a 40 hour week, but is fine for a 20 hour week for a busy mum (for example).

  • Comment number 78.

    It's very rough on them and I hope that any firms where workers have to take a pay cut would see it go through to the top as well.

    On the other hand, I regard strategic redundancy (to improve the health of a firm rather than a desperate survival measure) as simply good management, and indeed bosses at such a company are doing a good job and should be well rewarded.

  • Comment number 79.

    @70 spec

    Yeah that works, back to the 70's comrades

    Can you name me one time that industrial action has benefited the worker. They dont get paid while their out and the business usually loses its customers that they fail to supply. All strike action ever achieves is the worker loses out and often the business goes to the wall.

  • Comment number 80.

    Job losses to preserve profits, taxpayers bail outs to preserve profits, unregulatated utilities prices on UK consumers to preserve EU profits.

    Socialism, just smells funny to me.

  • Comment number 81.

    I hear by the BBC that Danny is his nickname in the business. Jolly lot aren't they?

  • Comment number 82.


    Great article, I'm moving to Germany tomorrow!

    Someone that is doing what appears right, rather than doing what he thinks will get him re-elected.

  • Comment number 83.

    Comment #69 by fatcat, ending "why do we need growth year on year?"

    The answer to that from most economists is that without growth there is stagnation and recession and lots of gloom and despondency.

    The answer from people who can do maths a bit better, and haven't been contaminated by economic theory, is that that is absolutely the right question to ask! There is a difference between stability, with a healthy throughput of cash and movement of goods for example, and stagnation.

    More growth in some sense equals more energy in the system, which generates more instability and chaos. That's a straight consequence of the maths (analogous to heating water - eventually it boils, and the situation inside the water is chaotic), but it's not really filtered through to the economists yet. There isn't a lot of mention of chaos on the websites which explain the mathematics of economics and finance. There's a bit here and there, but most economists would prefer to ignore it, or at least to ensure that it is somebody else's problem.

    Keeping the economic situation in the world stable does require keeping the economic maths in a non-chaotic region. Which is going to take some work, and some tight regulation once it's achieved.

    It'll be a very bumpy road in the meantime!

  • Comment number 84.

    Sorry I am on a mission. It's cold and I am drugged up on strong "real" coffee, its cheaper than booze.

    Brown takes 2.5% off VAT and tells us to spend. So should I forget that I am un employed mainly because of his (Sorry the US's) mis-mangement of our economy. Should I go shopping up to the limit of my credit (never even used a third of it in the past and then only for a few months). If I do then the government will help me like they do the herd out there that have over extended themselves.
    Just received yet another e-mail telling me I have been unsuccessful on a job application (for which I was over qualified).
    Benefit for Work - Bring it on - But like most that this government says it will do it will come to nothing. It's a New Labour/Blair Politics policy talking and doing nothing, save our Middle East Wars (how much have they cost apart from in human life of course)

  • Comment number 85.

    The biggest problem right now is not DEMAND for credit but SUPPLY of it. So lower interest rates have made and will continue to make the situation worse. No, inflation won't result, but the credit crunch will worsen. The lower interest rates get, the harder it will be to borrow, and the more the recession will bite.

    This recession is NOT like previous ones. They were characterised by lack of DEMAND for credit at the prices (interest rates) available. Right now people and businesses want to borrow but can't.

    Deflation, if it occurs, will be caused by lack of demand in the economy caused by lack of supply of credit CAUSED BY INTEREST RATES THAT ARE TOO LOW!! Every reduction in rates by the government/ Bank of England will make the recession worse and increase the likelihood of deflation.

    "Their behaviour is consistent with the remaking of capitalism"?? Give us all a break, Robert. It's consistent with a free market for labour.

  • Comment number 86.

    I agree with PaulDeberry #17 that something has to be done about public sector pay. If not a paycut surely they should have their pensions put on a more realistic basis - higher contributions and retirement at 65.

  • Comment number 87.

    63 - dcacooper - thanks for your insight and candour.
    I appreciate that the pension pot is unfunded and what is paid out now comes from this years' HMRC pot - but as we have moved through an immensely tough period with increasing number of baby-boomers heading for retirement, in increasing numbers from the public sector as this has expanded wildly, would there not be a net positive effect in addressing public sector wages now rather than later (in the form of culls and closures)?
    This should also mitigate the reduction in contributions from current workers as there would be more of them for longer paying into the pot as increasing numbers retire on slightly revised allowances.
    I understand that people in the public sector work hard for their money, which in many cases is less than they may receive in the private sector, but for this they get more than just an over generous pension paid for by all of our children and grandchildren, - they get rather more security and insulation from the woes of this current economic storm and the protection of the Saviour of the World as the lights go out for the rest of us

  • Comment number 88.

    When I was a lad brought up in good old fashioned Keynsian economics, I learned that there were two types of inflation, demand-pull and cost-push. The problem with the MPC strategy of dealing with inflation, namely increasing interest rates, is that is works best with demand-pull, where the increase in interest rates helps reduce demand, than with cost-push, in particular where the costs are increasing mainly due to factors external to the UK such as increase in commodity prices, especially oil.

    In the 1980's opposition politicians described government policy of controlling economic activity through interest rates like playing golf with just one club. Maybe as part of the new capitalism, other forms of economic management other than just interest rates will come into play - basically we are talking about fiscal policies, i.e. changing tax and public spending policies as a way of regulating the economy, playing a much greater role in the future.

  • Comment number 89.

    #77 wrote
    "Simply because the median salary is "only 21k" it does not mean 50% of people earn less than this at all."

    Actually it means exactly that. If the median is 21k then 50% of incomes are this or less. It is a straightforward mathematical concept with absolutely zero wiggle room.

    As the average salary is nearer 25k it shows, vs the median, how the fewer higher salaries distort it.

    So what if some people work part time, if it suits their lifestyle and they can afford it it is not relevant.

    18k may be a rubbish salary for a forty hour week to you, but for a hell of a lot of people that is what they earn, they don't choose to have a small income. A small reduction in it means a lot more, and so if there is to be financial pain the higher salaried members of society should take, at the minimum, their fair share.

  • Comment number 90.

    Re: 82

    Yes. I agree.

    Parliament is an electioneering chamber.

    Exactly what we don't need in a time of crisis...

  • Comment number 91.

    It is understandable that the workers at JCB and Corus are prepared to take pay cuts in order to save their jobs, but with less pay their purchasing power will be less. This will contribute to the vicious circle deepening the recession.

    It is also the case that because of the fall in the exchange value of the pound relative to the euro, Corus and JCB effectively already have a more than 25% reduction in their UK costs as far as sales in Europe are concerned. If this is not enough, a further 10% reduction probably will not help.

    Because of the weakness of sterling the UK will probably have to wait for recovery in the US and the Eurozone to pull it out of recession.

  • Comment number 92.

    #43 2/3 final salary pensions? Where please?

    Most public sector workers I know get at most 50%. I wouldn't begrudge a dustman or a nurse that.

    The only people who get more are senior management who are retired early for incompetence.

  • Comment number 93.

    # 82

    I agree about him not worrying about getting re-elected. Note that there's an election due in September 2009 in Germany. He's also in the opposite political party to Chancellor Merkel. Makes his honesty even more impressive, and highlights what a bunch of munchkins the UK has masquerading as "leaders" (across all the parties).

    I have no idea whether the UK or German approach is best. Time will tell. I do know which politician has been most honest, though, and it's Steinbruek.

  • Comment number 94.

    # 86

    Never mind higher pension contributions for public sector pensions, let's make them defined contribution like the bulk of private sector workers. Why should the private sector provide protection against investment performance, when the people providing it don't get that pretection themselves anymore? We also need them putting on a sustainable basis, ie a segregated portfolio of assets from which to pay future pensions. At the moment, public sector pensions are simply paid out of current tax receipts. As RP has pointed out several times recently, these are likely to take a long-term hit, even after we come out of recession, because the financial services sector will make a much smaller contribution going forward. Spending cuts are needed to balance this longer-term. Public sector pensions are an obvious starting point.

  • Comment number 95.

    The other thing about public sector pensions is that they are now moving to "average salary schemes".

    The real problem is that most public sector pension contributions just go into the exchequer, not actually into a pension fund.

    This is one of the differences with Germany, where the welfare state is based on compulsory insurances, usually paid to the equivalent of friendly societies. Not that they don't have problems with this. Partly because of the usual demographic changes, and partly because the friendly societies are themselves huge bureaucracies: perceived to be overpaid and unaccountable. My information comes from a German relative, formerly chief statistician of a major city. Incidentally, she herself took a paycut a few years ago when that city had a financial crisis.

  • Comment number 96.


    I think someone is rattling your cage. The union did not suggest this 10% cut in pay.
    The bosses of the company have recommended this.

    I have also read that the factory is probably going to close in any event because the owners are now looking at its capacity as 'surplus to requirements'

    I thought your entry today was to good to be true. My understanding is that the union is considering strike action.

    Striking may not be a good idea as no one needs their steel right now. A bit like when the miners went on strike with 18 months coal sitting above ground in huge piles.

  • Comment number 97.

    #40 JayPee28bpr thank you for the link!

    ''…Making political decisions means taking responsibility in an environment of uncertainty. When in doubt, I'd say the risk is greater of burning money without significant effects and in the end having a budget weighed down with even more debt. For me the only stimulus measures that make sense are those that create jobs and have a positive structural effect beyond the economic cycle…''
    (Steinbrück- Germany's Finance Minister)

  • Comment number 98.

    It's not a question of begrudging anyone (with the possible exception of HMG and her Opposition) what they receive. I do think that addressing some painful issues relating to pensions liability at the same time as reviewing the policy of heedless expansion of the State and borrowing might be advisable.
    Discontent is certainly coming, in many places it's here already.
    Let's act rationally

  • Comment number 99.

    Salary cuts, falling pound, RPI forecast to fall, UK will soon be the export powerhouse of the world - our prices will be bargain basement but UK citizens still wont be able to afford them - it will be export or die!

  • Comment number 100.

    Bert - this makes perfect sense - pity the public sector wouldn't take it on board and see what is happening in the real world


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