The public sector unions will fight to save national pay bargaining but Cameron must defeat them

In an article for this morning's Telegraph Michael Fallon MP sets out five ways to cut Gordon Brown's budget deficit.  His ideas included (1) culling quangoes (starting with the Cabinet); (2) giving police commanders, head teachers, NHS executives command over their budgets so that they can shift resources to the frontline; (3) emulation of best private sector practice in cost-cutting and (4) sharing and out-sourcing of back-office functions. But his fifth recommendation stood out:

"We can no longer afford the distortions of national pay scales. They are long gone in the private sector. Paying a fireman the same in Doncaster as in Dorking, or a council planner the same in Merthyr as in Maidenhead, doesn't help – why should hard-pressed public sector budgets carry the huge difference in living costs? Labour talked about local pay but soon backed down in the face of union intransigence, thus holding back the ability of areas like the North East or Wales to make more of their available labour, cheaper housing and utility costs. How can businesses thrive when they have to compete against rigged labour markets, in which public agencies enjoy national pay scales, subsidised pensions, generous sickness pay and greater job protection? Why are local councils still sheltering behind national pay bargaining?"

Michael Fallon is absolutely right. The Conservatives must use this fiscal crisis to deliver positive change for the country. An end to national pay bargaining (MIchael Gove has already suggested it for new schools) would be one such gain... but the powerful public sector unions will hate it. The confrontations could be as significant as those that faced Margaret Thatcher in the 1980s. But the gains to the hard-pressed taxpayer and to labour market flexibility will be worth it.

Tim Montgomerie