British government must present its new budget in the autumn, but the debate around it is already burning because of the wages in the private and public sectors. On the way to Brexit, the Prime Minister Theresa May will have to choose whether to reverse or to defend a policy that is both unpopular and unnecessary. Sadly, for her the more meaningful solution is the turn-around of the economic policy.
For years, the British Conservatives had a strong belief that the budget deficit should be eliminated by 2020. Some Tories are already willing to give up this way of thinking, others still support this position.
Speaking to Parliament on Wednesday, Theresa May stood firmly on the side of the economies.
“Greece showed us where the lack of fiscal discipline leads”, said UK Prime Minister.
The Labour Party leader Jeremy Corbin has not touched. He rejects the “low wage outbreak” and argues that a 1% cut in wage growth in the public sector should be lifted. Corbin is right. British employees are feeling more and more pressure, especially in the public sector, because of accelerating inflation partly due to the fall in British pound after Brexit referendum. Paying civil servants is just one of the many requests to the state budget. The National Health Service, for example, is in a state of constant crisis, as the funds for the elderly and other needs are alarmingly inadequate. The list of other worthwhile costs is infinite. An attempt to respond to these demands will really be a fiscal crash formula.
The government must prioritize. Where higher wages are needed to hire and retain employees in important services, should let them rise. Where additional public spending is needed to provide vital infrastructure, drive productivity or support growth, should invest.
In such cases, higher taxes or higher public lending can be justified. If the constraints and ceilings are used in a way, that makes this necessary, the flexibility is impossible – not as an emergency measure but as a long-term control system – it will cause more harm than benefits.
Taking Theresa May’s total savings, by the way, is a bad policy besides being a bad economy. Most British voters have forgotten or never experienced the devastating consequences of wasteful public spending. That’s why Corbin’s expansive promises are more popular than one would expect.
The time to change the fiscal strategy is certainly unlikely. Brexit shook investors, giving the government less room for maneuver. Even so, the government should not be paralyzed – and should not argue that careful flexibility will make the country another Greece.
Targeted spending on improving vital services and fostering future growth is a good policy and UK’s best buffer against road danger.