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29 June 2017

The public sector pay freeze isn’t the only Downing Street policy in danger

The government has reached the end of the road as far as politically-deliverable cuts go.

By Stephen Bush

It’s Schrödinger’s pay freeze: is it dead or not? We won’t know until Philip Hammond opens the box! Yesterday, two Cabinet ministers – Chris Grayling and Michael Fallon – suggested that it was dead. Then Downing Street said it remained in place.

But as I wrote yesterday, the pay freeze is one of four things that Conservative backbenchers think must change before the next election. (The second and third are the cuts to schools and the pressure on the health service respectively, and the fourth is their leader.) Two senior backbenchers, Stephen Crabb and Nicky Morgan, have publicly called for an easing of the pay cap, particularly for nurses.

The difficult truth is that whatever Nos 10 or 11 may say or think, there aren’t the votes in the House for a budget that doesn’t include some action on the pay freeze. (The government can do it and keep to Philip Hammond’s revised deficit projections, as he has an extra £30bn of headroom, and a pay increase at inflation would cost around £4bn.)

It’s worth pausing, forgetting May’s woes for a moment and looking out at the government’s long-running difficulties at passing its fiscal policies. The proposed change in business rates? Mothballed. Philip Hammond’s modest change in national insurance? Abandoned and very probably a key factor in Theresa May’s disastrous decision to hold an early election. George Osborne’s tax credit cuts? Killed in the Lords, taking with them his leadership hopes and quite possibly Britain’s EU membership. School funding changes? A question of when, not if, those are abandoned.

In a way, May’s difficulties only highlight what was already true: that the government has reached the end of the road as far as politically-deliverable cuts go.  

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And with Britain closer to the next recession than the last, the levers are still firmly where Gordon Brown and Alistair Darling left them after they dealt with the last crisis: interest rates are still at record lows, the government still heavily indebted. 

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And that’s a far bigger worry, for the Conservatives and for everyone, than how long May endures at Downing Street.