Commentary: CBI makes case for no strings

Pay restraint has always been an awkward concept for the private sector to get its collective mind around. So it proved again yesterday when the Confederation of British Industry rejected the Prime Minister's idea of transposing the 1.5 per cent public sector pay limit into a pay norm for everyone.

The CBI was merely echoing what Britain's biggest private sector employers have already told the Government. A survey of the 20 largest, carried out by the Independent last month, demonstrated decisively that pay restraint for the sake of it was not on.

The CBI's contribution to the pay debate, delivered by its director-general, Howard Davies, to a gathering of industrialists in the East Midlands, was couched in careful language.

The CBI's message on pay, Mr Davies said, was a tough one. Companies everywhere should be looking to reduce unit labour costs, from the shopfloor to the boardroom. The competitive advantage gained from devaluation should be used to rebuild output, market share and employment levels, not frittered away on temporary increases in take-home pay for those lucky enough to be in a job.

But it would be unreasonable to expect the private sector slavishly to follow the public sector's example, Mr Davies said. A pay limit of 1.5 per cent would be too high for the one in seven manufacturing companies that had already imposed a freeze. On the other hand, management that failed to reward employees in those companies where profits had improved could put the future of the enterprise at risk.

The CBI is really saying that pay in the private sector ought to be determined by performance and not by prime ministerial plea. If that is a tough message, then it will be toughest of all on John Major as he seeks to hold the line this winter in the public sector.