From the TUC

Local Pay: Inefficient, unfair and divisive

06 Dec 2011, by in Public services

Last week Alice blogged about the impact of the announcements in the autumn statement on public sector workers.

Of course most of the headlines were grabbed by the Chancellor’s announcement that he would impose two years of 1% pay-caps on public sector workers at the end of the current two year pay freeze (three years if you work in local government). At a stroke this announcement managed to undermine the ongoing negotiations around public sector pensions (which in part are about significant contribution increases in the context of a pay freeze); confirm the government’s intention to cut the living standards of public sector workers by 16.5%; and signal his seeming contempt for collective bargaining and fair negotiations. Having days earlier called on public sector unions to ‘get back around the negotiating table’ over pensions, the Chancellor effectively pulled the table away from them when it came to public sector pay.

Of course whether or not the government can hold to its 1% cap remains to be see. Previous governments of different political persuasions have struggled to maintain medium-term pay/incomes polices, particularly against the backdrop of turbulent economic conditions. Both Edward Heath and Jim Callaghan can testify to that.

But perhaps just as important as the announcement of the 1% cap, was the Chancellor’s call for Public Sector Pay Review Bodies to look at how public sector pay can be made ‘more responsive to local labour markets’.

Briefing the Times (here, sorry it’s behind a pay-wall), ‘Whitehall sources’ implied that this was necessary because in some parts of the country the private sector had effectively been squeezed out as a result of its inability to match public sector wages. Of course this is nonsense. As the TUC’s northern regional secretary Kevin Rowan pointed out on the Today programme last week (here, 2hr 10mins) the North East has both the lowest overall wages (£200 a week less than London for full-timers) and the highest unemployment rate (11.6%) of any of the English regions. The private sector in the North East is not being ‘squeezed out’; it’s simply not creating enough jobs. Lowering public sector wages in the region will not improve this situation one iota.

The Chancellor’s announcement – which goes well beyond traditional London weighting-style arrangements – had little to do with ensuring healthy local/regional labour markets , and everything to do with signalling another lap in the race to the bottom on the pay, terms and conditions of public sector workers. It’s part of an ongoing assault on national pay frameworks – given a semblance of  intellectual ballast by the likes of CentreForum and Policy Exchange, and embedded in the government’s approach to public service reform.

Consider the government’s record so far:

October 2010 – the abolition of the nascent School Support Staffs Negotiating Body which would have helped determine pay, terms and conditions for 500,000 (mainly women, mainly part-time) class-room assistants, school administrative staff and support workers

December 2010 – the abolition of the so-called ‘Two-Tier Code’, which helped ensure that when public sector contracts were outsourced new starters had access to broadly comparable terms and conditions as their more established colleagues

December 2010 – Lord Hill, Parliamentary under secretary of state, writes to schools to stress that there is no requirement on schools seeking Academy status to stay within national pay bargaining frameworks, and that he will take this into consideration when assessing their application

I could go on – the Review of the Fair Deal on Pensions, the Health and Social Care bill which threatens a move toward localised pay and conditions, the Open Public Services White Paper with its commitment to open up public services to a broader range of providers and to decentralise ‘decision making’ to the lowest possible levels – the government’s direction of travel is clear. More fragmentation, more localised bargaining (if indeed bargaining takes place at all).

For unions this throws up some very practical problems. Resourcing hundreds, thousands or even tens of thousands of local pay negotiations would be incredibly difficult, particularly in the face of an another ideologically driven assault on facilities and facility time.  But a move to localised bargaining would not only be problematic for unions and their members. It would be bad for public sector employers, bad for taxpayers and bad for the UK economy as a whole.

Here are just five reasons why:

1) Localised bargaining is incredibly inefficient

There are over 3,100 secondary schools in England. Around 1400 of these are Academies. Lets presume that each of these schools takes Lord Hill’s advice, and decides to disregard national pay and conditions and moves instead to setting these itself. It doesn’t need a math’s teacher to deduce that this might actually consume a bit more time and effort than staying within the existing and time-served pay system.

This of course presumes that the average Head Teacher or Chair of governors has the time, inclination and skill to carry out the negotiations themselves. Many won’t. Instead they will rely on external consultants and HR advisors to do the job for them. The end result will be more time, more money and more effort – time, money and effort that could have been spent educating kids. Now imagine this scenario being played out right across the public sector. Imagine every GP consortium, every hospital trust, every local council, every NDPB, every Sure Start centre going through exactly the same process. ’Decision making devolved to the lowest possible level’. Chaotic, uncoordinated, inefficient – that’s the government’s vision for the future of public sector pay determination.

2) It could lead to an explosion in localised disputes

Localised pay bargaining will not only be chaotic, it will also potentially spark an endless round-robin of localised pay disputes. Unilateral, decisions to attack pay, terms and conditions by local councils up and down the country have led to bitter and, in some cases, prolonged disputes. At the moment Southampton, Birmingham et al are relatively exceptional cases – localised bargaining will see these sorts of disputes raise their head across the country.

3) It would reinforce and entrench existing regional economic disparities

Lets go back to Newcastle, and assume the government gets its way. A school cleaner in Newcastle now earns about  15% less than her counterpart in, say, Basildon (equivalent to the existing regional ‘pay-gap’). How does this help to boost the North East economy? How does it create new private sector employment? The simple answer is, of course, it doesn’t. With 15% less wages to spend in the local economy, the consequence of regional/local pay will be to shrink those regional economies already most vulnerable. And the fact is this will not be restricted to the public sector. Lower public sector wages will drive a race to the bottom in the private sector as well.

4) It risks opening up the gender pay gap and leading to increased gender inequality

The struggle for equal pay – at the negotiating table and in the courts – has been a constant for public sector unions and their members over the past few years. Thousands of Tribunal cases, long and complex negotiations to deliver equality–proofed pay systems (exemplified by Agenda for Change)  – its been hard, but important work. Now all of that is at risk if the government gets its way. Coupled with the abolition of the two-tier code, arbitrary pay freezes and uncoordinated local ‘decision-making’, we can expect the government’s plans to localise pay to result in a huge widening of the gender pay gap and, consequently, Employment Tribunal claims galore. But maybe the government has thought of this. They plan to charge huge fees to access justice through an ET .

5) Fragmenting collective bargaining will widen income inequality and damage the economy

As my former colleagues Chris Wright has pointed out, there is a pretty strong social and case for collective bargaining – its well accepted that high collective bargaining coverage is one reason why the Scandinavian countries have world beating levels of income equality. But there is also a more hard-nosed economic case. Writing about this in August this year Chris noted:

“In 1994, the OECD said that labour market deregulation was the best way for countries to reduce unemployment. However, the OECD revised its recommendations in 2006 after the Scandinavian countries showed that highly coordinated collective bargaining systems and active trade unions could actually produce strong economic  performance and jobs growth (essentially the opposite of what the OECD had originally prescribed).

“There is considerable agreement within the academic community that highly coordinated systems of collective bargaining have a more positive impact than ‘uncoordinated’ or ‘fragmented’ systems. In other words, it is not how many or how few workers are covered by collective agreements, but rather the extent to which bargaining is coordinated, that matters most in assessing whether collective bargaining systems have a positive or negative macroeconomic impact.”

But George Osborne’s announcement appears to put ideology before what might actually be good for the UK economy. Localised pay bargaining, and the government’s direction of travel on public service reform, will mean reduced collective bargaining coverage AND less coordination and more fragmentation. It may mean reduced wage-bills for the big outsourcers lining up to take the next tranche of public sector contracts, but it will be public sector workers, the taxpayers and the community at large who will effectively pick up the bill.

With the stakes so high, a strong union response to the government’s efforts to move toward localised bargaining is essential. We need to build the evidence base for the positive impact of (national) collective bargaining in both the public and private sector (expect a new TUC report on this issue very soon). The positive impact for our
members and working people certainly; but also the wider social and economic benefits of coordinated pay bargaining.

We need to engage our own members and explain to them why this issue is so important. In the midst of everything going on at the moment – job losses, real terms pay cuts, pensions – retaining national pay bargaining probably ranks about no 63 on the average members list of hot issues. But in the long term the break-up of national pay bargaining could be of far more significance than the current pay freeze.

Last but not least, we need to support union campaign and action wherever there are efforts to undermine existing national pay bargaining arrangements. Unions in the private sector have shown that they are not prepared to allow employers to walk away from national agreements – and I am confident government will get exactly the same response in the public sector.

One Response to Local Pay: Inefficient, unfair and divisive

  1. Pay cuts, job losses, outsourcing: local government in 2012 | ToUChstone blog: A public policy blog from the TUC
    Dec 8th 2011, 9:41 pm

    […] The report also points to councils exploring the potential for greater “local adjustment” within the national pay bargaining agreements.  It recommends that councils should “benchmark pay rates with public, private and voluntary organisations in similar labour markets”.  While it stops short of recommending local pay bargaining, it clearly links local variation with potential labour cost savings thus echoing the government’s direction of travel that we highlighted here recently. […]