Matt Oakley

If the rumours are correct, the Treasury is considering a two-year freeze in working-age benefits. Those who have been following the debate surrounding the need for a further £10 billion from the welfare bill will not find this surprising. The most recent Government statement on the issue came in the Prime Minister's welfare speech in June when he clearly laid out his unhappiness that benefits had been increased by 5.2 per cent last year, despite earnings only increasing by 2.5 per cent. With this in mind, the rationale behind the freeze is twofold. Firstly, if benefits are rising faster than wages, the gap between what someone gets on benefits and what they might get in work is reducing and incentives to make the move into work are being reduced.

Terrible events in Norway and the ongoing phone hacking scandal have kept the economy out of the media in the last couple of weeks. Coverage of the latest bail-out of Greece last week was comparatively muted, especially considering how important it is for the eurozone and, by implication, the UK. However, if the soothsayers are correct, it is unlikely that the release of the Q2 GDP figures tomorrow will fail to hit the headlines. When the Office for Budget Responsibility published their forecast for the UK economy in April they had forecast growth of 1.7 per cent this year, but signs are that tomorrow's Q2 data will raise stark questions about the likelihood of that level of growth. Indeed, many commentators have revised their UK GDP forecasts down in recent weeks.

Data issued yesterday by the Incomes Data Services indicated that average pay settlements over the first quarter of 2011 in the public sector were close to 0 per cent. However, pay settlements in the private sector were closer to 3 per cent. Does this mean that Policy Exchange were wrong in a recent report to conclude that public sector workers are overpaid compared to their private sector counterparts? The basic answer is no. We highlighted that on a range of measures, workers in the public sector were overpaid compared to their comparators in the private sector. Even on our most conservative measure, which accounted for compositional differences in terms of age, location, hours, gender and qualifications, this gap was around 9 per cent.