Localising public sector pay could end up biting the chancellor
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”.
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.