§ Mr. Marlow
asked the Prime Minister how much could be saved if the pay of all public employees, excluding those in productive nationalised industries, were reduced by 3 per cent; and what are her estimates of the effect such a saving would have on interest rates and therefore employment and production in the private sector, and the increase in tax revenue and overall reductions in the public sector borrowing requirement.
§ The Prime Minister
The annual bill for the wages and salaries of public service employees is currently of the order of £30 billion. Therefore, if the pay of these employees were reduced by 3 per cent. there would be a direct saving on 635W public expenditure in a full year of around £900 million. The immediate reduction in the PSBR would be rather less than the saving on pay because tax receipts would also be lower. The effects on the economy as a whole are more difficult to calculate and would require a simulation on a macro-economic model. I regret that this would involve disproportionate costs. Nevertheless, it is quite clear that the effects of lower pay would be extremely helpful both in reducing the PSBR and promoting the conditions for lower interest rates.