WHEN the editor of the Guernsey Press suggested the public sector pay award should be renegotiated, to reflect Guernsey’s inflation rate plummeting to -1.2%, he was told to ‘go forth and multiply’ by both sides.

That’s understandable. The employees feel they’ve agreed a deal in good faith and it is binding. It’s not their fault if recent events have made that agreement look absurdly generous.

The employers must be kicking themselves for getting it so wrong, but know that failure to honour the deal reached by free collective bargaining would undermine confidence in the whole process.

The real question is not ‘should it be renegotiated’, but ‘why did the PSRC make such an offer in the first place?’.

Let’s be fair – it’s very easy to be wise after the event and mistakes look so obvious in hindsight. This year’s settlement was the second stage of a two-year deal and was negotiated some considerable time ago. Presumably those sitting around the table, representing the taxpayer, simply couldn’t conceive of inflation falling so far. That said, they goofed, and they must know they did.

Originally, both sides agreed there should be a pay rise of just under 5% in year one, followed by a further increase of about 1% below inflation this year. So it was accepted that in straitened circumstances a slight pay reduction – in real terms – was reasonable for States employees for 2009. The devil was in the caveat – ‘subject to a guaranteed minimum increase of 3%’.

One can only presume the PSRC calculated that inflation was unlikely to fall much below 3%. Even if it did go down to, say 2.5%, that would be very good news, and a settlement a tad above RPI wouldn’t break the bank.

Clearly, they gambled on inflation not falling much further and in the event, that gamble has gone very badly wrong. It was a gamble with all the risk on one side. If inflation had leapt to 10% then the increase would have reflected that in full. In banking terms the deal had a collar, but no cap.

I can never remember the States giving an RPI +4.2% pay rise before, not even in the best of the good times, when corporation tax was rolling in. To give it at a time of real financial challenge, with warnings of big increases in taxation needed to balance the books, seems insane.

I don’t begrudge the workers their rise. I accept that today’s unusual inflation scenario was difficult (but by no means impossible) to predict a year or so ago, but the outcome is a hard burden for the taxpayer to bear.

What isn’t clear is whether the scrapping of the old Government Business Plan brings with it the total abandonment of the previously agreed limit on the States’ revenue expenditure – RPI or less.

If not, then how will departments reduce their spending by 1.2% while paying staff 3% more? It can’t be done without savage cuts in services.

I know that the current negative inflation is largely a result of falling mortgage rates, and not all workers have mortgages. However, I didn’t hear the unions making that point over recent years when the RPI was consistently above RPIX. Whichever index is used there needs to be consistency, and both sides have accepted the RPI as the starting point for negotiations for many years.

So what is to be done? The deal is a deal, and sticks. We have to foot the bill. The unions must know the States will look to claw back some of this year’s largesse in future settlements.

Should the PSRC be scrapped as some are suggesting? Personally, I think so – but not to be replaced with some sub-group of Policy Council.

I much prefer the idea of independent Public Sector Pay Review Bodies to the old fashioned system of free collective bargaining.

This would allow an objective judgement to be reached, based on both fairness and affordability. The new system should also involve a ‘no industrial action’ agreement for key, strategic, public services.

Don’t think the PSRC is incompetent, though: it remains a very professional outfit. It is just that this once, it has been turned over, big time, by the unions.  It’s best that Deputy Brouard and his committee hold their hands up to the fact and take full responsibility for this very expensive gaffe.

It’s an event that has left us all a little wiser – and considerably poorer.