Leading Article: Misreading the plot in Clarke's drama

REPORTS that Kenneth Clarke plans to squeeze public sector pay for the third year inevitably raise fears of further damage to battered morale. Pay has already fallen by more than 10 per cent compared with the private sector since 1981. Critics will question whether the Chancellor has subordinated the maintenance of high standards in public services to tax cuts prior to the next general election. Cynics may even credit Mr Clarke with a cunning plan to foment industrial strife among public sector workers and so embarrass their natural allies in the Labour Party.

Such plots are credible: Mr Clarke regards himself as a political chancellor and would not be beyond this. But these readings of his pay policy may overdramatise both its intent and its impact.

Mr Clarke is, after all, advocating not a pay freeze but a freeze on the total pay bill. Within this formula, many staff should still be able to win increases, but only if the total number of people employed in the public sector falls. Under similar restrictions this year, most of the 1.4 million workers covered by pay review bodies received an extra 2.7 per cent. That still lagged behind the private sector, where awards have been running at 3.75 per cent.

Those who foresee industrial conflict point to the strikes that occurred in the last years of the Callaghan government and during the mid-Eighties. On each occasion a third year of public sector pay restraint had been attempted. But history may not repeat itself. Today's still low rate of inflation means that a freeze is not as harsh as it would have been in the past.

Besides, government agencies should be able to make efficiency gains. Of course, for these gains to be translated into pay increases, there would have to be job cuts, achievable usually through natural wastage. But pruning the public sector workforce at a time when unemployment is falling is more acceptable than would be the case during a recession.

In short, Mr Clarke may achieve a third year of restraint at a lower cost to industrial peace and public services than was the experience of his predecessors. Even should such prediction prove faulty, he may indeed have calculated that a few strikes would not unduly damage his political fortunes.

But long-term issues, such as the future role of pay review bodies and a desirable progress towards more local and sectoral pay bargaining, remain uncertain. A freeze on the pay bill is a crude weapon, but given his priority of nurturing a low-inflation, sustained recovery, Mr Clarke is justified in deploying it for a further year.