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Taxpayers to subsidise wage costs?

• Robert Peston
• 11 Dec 08, 12:18 PM

Corus tells me that the employee pay-cut proposal is one of only a series of measures being discussed by Corus's management and workforce.

Those discussions seem to be constructive. A strong survival instinct seems to be dominating the approach taken by management and unions.

But it seems unlikely that such a pay cut would eliminate the need for redundancies, such is the scale of the collapse in demand for steel that has taken place.

So , Corus's chief executive, has lobbed the ball over to government, by asking for temporary financial help.

What Corus would like to see in the UK is a version of a scheme recently introduced in the Netherlands, by which the Dutch government pays up to 70% of the salaries of struggling Dutch companies for up to 24 weeks.

The point of the Dutch scheme is to keep employees on the books of stretched companies during the most acute phase of the economic contraction - in the hope that the relevant companies can afford to pay wages once more, when the recovery begins.

There's certainly a logic to the Dutch safety net, in that it should mean that important companies don't permanently lose access to a trained, skilled workforce.

But, if introduced in the UK, it would involve ministers making a nightmarish judgement about which companies and employees deserve such a subsidy and which should be left to stand or fail on their own.

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Pay cuts versus job losses

• Robert Peston
• 11 Dec 08, 09:08 AM

When workers at and 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 .

The 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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