From the TUC

Localising public sector pay could end up biting the chancellor

19 Jan 2012, by in Labour market

The Chancellor has asked the public sector pay review bodies to look at how public sector pay can be made “more responsive to local labour markets.”* Most people, including trade unionists,  would say that it is fairest to pay people for what they do, not where they live.

Perhaps the Chancellor is just toying with the idea of tweaking around the edges of the public sector pay scales.  Certainly to push for full localisation would be foolhardy, as it would cause significant detrimental economic side effects and would be likely to lead to the Government having much less control over the public sector pay bill.

The main risk is that the less well-off regions and nations of the UK would be made poorer by localisation. Columnist Chris Giles was making the case for localisation  in the FT today, but he admits with cutting irony that:

“cutting public sector pay in poor areas is as likely to generate local dynamism as the austerity measures currently imposed on Greece.”

Second, the mechanisms needed for local bargaining would not be very efficient.  National bargaining brings economies of scale to public sector pay setting. Local bargaining would mean committing significant extra resources. For example, the NHS has 161 acute hospital trusts. Each of these would have to gather labour market intelligence, draw up a negotiating position, hold a number of negotiating meetings involving senior staff, and set up new pay-roll systems and so-on.

Significant differences in pay between localities, regions and nations would also provide an incentive for public servants to migrate away from the poorest areas, causing new skill shortages.

Localising pay might well also reignite the legal battles over equal pay, with all the expense and uncertainty that would entail.

Perhaps most worryingly for the Government though, genuine localisation of public sector pay would take a great degree of control away from the chancellor. Local determination is not compatible with pay freezes and caps.

Furthermore, although local market pressures may bear down on public sector pay in a recession,  what would happen in a boom? The answer is likely to be that trade unions would be very astute about playing off public sector  employers against each other in negotiations, as the bargaining “game” would then become a contest between national unions with full-time negotiators and local employers . The process of ramping up settlements by singling out the weakest employers first is known in industrial relations jargon as “whipsawing”. This could well lead to the overall public sector pay bill rising more quickly.

This strategy might benefit some public sector workers, but this would be to some extent at the expense of others. Unions do not pursue  this route now as it would simply be unfair .

The overall outcome would be that those who live in rich regions would get richer whilst those in poorer areas would lag even further behind – simply the antithesis of us “all being in it together”.

* NOTE: An explanation of sorts is set out on the Treasury website:
The Public Sector Pay Review Bodies cover just over 1.5 million public sector employees. The review bodies are for the following occupations: teachers, doctors and dentists, nurses and medical professions; prison staff; the armed forces and senior jobs such as judges.

3 Responses to Localising public sector pay could end up biting the chancellor

  1. The Squeeze
    Jan 19th 2012, 8:35 pm

    National pay grading doesn’t mean the public sector pays a uniform rate all over the UK for the same jobs. Payscales for some LA professionals can vary from £20k to £40k around the UK.

    In my experience, the standard of living is so much better in the cheaper areas (i.e. the north, wales, scotland) that councils there have all the clever employees and the south east is staffed by thickos.

  2. Michael Hughes
    Jan 20th 2012, 9:21 am

    The Audit Commission and Local Government Association report on the local government workforce, “Work in Progress”, has some useful information about the realities of local government pay – and the impact of existing local bargaining. http://www.audit-commission.gov.uk/nationalstudies/localgov/Pages/WorkinProgress.aspx

  3. Paul Sellers

    Paul Sellers
    Jan 20th 2012, 10:42 am

    Thanks. Of course unions do of course undertake a little bit of local bargaining around the margins – although factors like the availability of overtime can have a strongest effect on variations in earnings amongst manual workers.

    The real point was that more localisation would be likely to make things worse.

    Can I aslo say that I resent the idea that local authority staff in the SE are “thick”. This sounds to me like an assertion based on a simplistic view of labour market theory that is not supported by data.

    The skilled nature of many public sector jobs means that the workforce is, on average, more highly qualified than the private sector.

    For example, 42% of public sector employees have degrees, compared to 23% of private sector employees (ONS LFS 2011).

    However, public sector employee with degrees earn slightly less than there private sector counterparts.