From the TUC

Regionalised pay: A dangerous distraction for our regional economies

04 Sep 2012, by in Public services

Today I am taking part in a Policy Exchange roundtable on the future of national pay bargaining in the public sector. With our economy in a double dip recession, and the deficit increasing by a quarter so far this year, it’s clear that as well as urgent action to kickstart growth, over the coming years we will need radical reforms to rebalance and rebuild our economy, and a relentless focus on getting maximum value for every penny of public spending.

But I am not persuaded that regionalising or localising public sector pay is the answer to the problems that we face – on the contrary, it would be most likely to make them worse.

The government has suggested that making public sector pay more “market-facing” would help support the recovery and regeneration of regions outside London and the South East. But allegations of excessive public sector “premia” are based on highly contestable statistical analyses – the public and private sector workforce are made up of very different people doing very different things, and many public service occupations simply have no meaningful private sector “comparator”.

And there is no evidence to support the claim that the reason private businesses are struggling in many parts of the country is that public service workers are being paid too much. The real problem facing private sector employers in places like my own constituency in Leeds West is the double-dip recession that, according to the latest report from the ippr, “has hit the North hard, with unemployment rising and business confidence falling”.

Indeed, as the paper published by Policy Exchange today acknowledges, shifting resources out of “low cost areas” wouldn’t help “problems of recruitment in deprived areas”, and would “be likely to damage growth and exacerbate regional inequalities.”

But the model they propose – insisting that schools, hospitals and other public sector employers plan and negotiate their own pay settlements at local level – is equally problematic. They suggest that, left to go it alone, headteachers or hospital managers would be able to solve any problems of staff recruitment, retention or motivation. But this will make it harder to plan and control costs, as public service providers compete with each other for scarce skilled staff.

Meanwhile those most likely to lose out will be less mobile workers on lower grades, many of whom will be women. Indeed, the NHS Employers’ own submission to the current government consultation raised concerns that breaking up national pay systems could jeopardise progress made in delivering equal pay for women working in the NHS under Agenda for Change.

The fact is that many public sector employers – including most local authorities – who could opt out of national pay structures if they wanted to, choose instead to focus their energies and resources on the challenges of improving the services they deliver. That’s because the costs and complexity would be immense – diverting scarce resources into extra layers of administration and bureaucracy, and adding to uncertainty and the risks of industrial disputes.

At a time when government, employers and public service workers need to be working together to find a way through one of the most challenging periods ever for our public sector, this kind of distraction and disruption is the last thing we need. This is why I remain opposed to any moves to dismantle national bargaining arrangements that offer the best means of planning public sector pay in a way that is fair, efficient, and in the best interests of taxpayers and public service users.

GUEST POST: Rachel Reeves is MP for Leeds West. At 33, she is the youngest person in the Shadow Cabinet since being appointed as Shadow Chief Secretary to the Treasury by Ed Miliband in October 2011. In Parliament, Rachel has led campaigns on tax credits, childcare and women’s pensions. Before her election, Rachel worked as an economist for the Bank of England, at the British Embassy in Washington and at Halifax Bank of Scotland.

5 Responses to Regionalised pay: A dangerous distraction for our regional economies

  1. Glesni Thomas
    Sep 4th 2012, 6:29 pm

    if regional pay is introduced, one clear consequence is that consumers in the north and other low pay areas will have less money to spend locally – how can that help to revive the economies of already hard hit areas?

  2. kenneth thompson
    Sep 4th 2012, 7:36 pm

    Save lives,dnnt change something which is working

  3. Jonathan Green
    Sep 5th 2012, 10:48 am

    Rachel makes a very good point about the admin costs of implementing local pay, which is rarely taking into account by those advocating this type of policy and there are many other reasons why it is a bad idea. What struck me in the Policy Exchange report is that they only achieve a saving through some creative accountancy. Their own evidence shows that if public sector pay is aligned (probably an impossible task) it would cost £3.8 billion. They only achieve the £6.7 billion ‘saving’ by including pension costs. Even if these figures are accepted this is hardly surprising when only 3.2 million out of 23 million employees in the private sector contribute to a workplace pension scheme that also includes a contribution from their employer. All they have really highlighted is that there is a strong case for higher public sector pay in London and parts of the South East and for some job roles above the 50th percentile. This is very much in line with reports by Income Data Services and others on this issue. Instead of focusing on regional/local pay it would be good to see Policy Exchange encouraging decent workplace pension schemes in the private sector.

  4. Ian chisholm
    Sep 5th 2012, 10:52 am

    Surly one of the dangers of regional pay is that talented people will be drawn to areas of high pay, altruism will not stop everyone from maximising there earning potential.
    The point should be that nurses, doctors, physiotherapists etc are paid the same for doing the same job, living in a different part of the country should not be a defining reason for a difference in pay.

  5. June Mitchell
    Sep 13th 2012, 12:12 pm

    The logic of regionalised pay escapes me. I see it as a means to further enhance the already financially better off areas at the expense of already poorer areas. We will become a country of financial ghettos where because lower wages = less money to spend = further decrease in standards for the people who have no choice but to stay there, the more able and talented will obviously move to the better paid areas.
    This coalition government appears to think that some people are poor and/or without prospects because that is what they choose. It is not. It is because they were not afforded the same privilges bought by the better off. Do they REALLY think that regionalised pay will benefit the whole country? You couldn’t make it up could you that anyone could actually think up such a ridiculous way to “help” the economy recover. Instead of wasting time coming up with such nitpicking ideas the PM and his “think tank” should earn the money THEY are paid by bringing in measures that profit the country as a whole . I shudder to think how little they would earn if they were paid by result.