Not really, it was more of a question than a statement though. What I meant was that just cutting staff pay isn't a simple calculation, we have to take into account lost tax revenue. Cutting 10% off the wage bill will demolish morale in the NHS (if that's possible), but won't save 10% in real terms, so is it worth it?
YOur suggestions for saving money for the NHS?
woody2000 - pay cuts impacting on the general economy
There is a multiplier effect associated with government spending - the nurses, doctors & building firms paid out of the NHS budget do not hoard all of their cash from wages. So the cash gets spent in shops etc. and an initial spend of £10k may end up having the effect of generating £20-30k in the economy.
The problem is that the the multiplier is linked to deficit, and there's something of a tipping point where the deficit becomes so large that people anticipate tough times (ie, high tax to pay off the deficit) in the future and increase their savings, removing the impact of the multiplier. I'd argue we are already there, and that's why we can't spend our way out of the problems we have.
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