Rachel Reeves

Member of Parliament for Leeds West

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Politics Home: No case for unpicking national public sector pay system

Writing exclusively for PoliticsHome, Shadow Chief Secretary to the Treasury Rachel Reeves says there is 'no case' for unpicking the national public sector pay system, and calls on the Government to make its position on regional pay clear.

Last autumn the Chancellor announced his desire to make public sector pay “more responsive to local labour markets”. At the time he described it as a “very significant reform”, and newspapers were briefed that the Treasury regarded it as “one of the most significant measures it can introduce to rebalance the economy”.

More recently, there have been signs that the Liberal Democrats and perhaps 10 Downing Street, have become worried about what new mess the Chancellor has started here, with signals given out that nothing is decided and, in the words of the Deputy Prime Minister, “there is no proposal on the table”.

Given the concern that this proposal has caused, the government has a responsibility to clarify its position and its plans. But all we have from the government is the evidence the Treasury has published which alleges that in many parts of the country public sector workers are paid upwards of ten per cent more than their private sector equivalents.

We should note first of all that this is a notoriously complex and controversial area of analysis where it is difficult to be sure you are comparing like with like - because the jobs done by teachers, police officers, or emergency workers have so few private sector equivalents. But if the government says that its starting point are these differentials, it can’t blame people for concluding that its ultimate aim is a reduction in the relative pay of public service workers of ten per cent or more in some parts of the country.

But there is no credible evidence to support the claim that the difficulties faced by the private sector are the result of national pay frameworks in the public sector. When we are seeing rising unemployment in many areas and record numbers of jobseekers for every advertised vacancy, it defies credulity to suggest that businesses are struggling because teachers, nurses, dinner ladies and police officers are being paid too much.

Paul Callaghan CBE, the Sunderland technology entrepreneur and owner of the Leighton Group awarded in recent Queen’s Birthday honours for services to the North East, has warned that “freezing of regional public sector pay must reduce demand for local goods and services, further dampening an already depressed economy. I have seen no credible research to show that this move will have anything but a negative impact on both the region’s private and public sector”.

James Ramsbotham, Chief Executive of the North East Chamber of Commerce, said “the Government should be working towards making the economy more equal across the regions and not entrenching further disparity by reducing spending power in the North East”. And the Chief Economist for Wales, reviewing the impact of public sector pay rates on businesses in Wales, has said “there is no credible academic evidence or research to indicate that crowding out had been happening in practice.”

Meanwhile, the costs of fragmenting national frameworks for negotiating and setting pay are clear - from the experience in the NHS under the last Conservative government, where an attempt to introduce local pay bargaining created chaos and confusion; the experience on the railways after privatisation, where the break up of national bargaining resulted in a huge increase in the pay bill; and the experience in local government, where the majority of councils that have chosen to stick with nationally negotiated pay framework have been better able to control costs.

The views of all the key stakeholders are also clear – not just those representing public service employees, but employers and independent experts have all expressed concerns. For example the NHS employers note that employers already “have the option to pay recruitment and retention premia to address ... labour market issues” and say that a move to local pay bargaining “would raise issues of local capacity, increase administration costs and risk pay inflation as employers compete directly for staff on pay. Getting rewards wrong could have a significant impact on the quality of patient care and safety.”

The National Employers Organisation for School Teachers say “the existing four national zones, plus the flexibility to pay recruitment and retention supplements ... provide an appropriate balance between national determination and local flexibility. ... the existing framework provides a reasonable level of autonomy to set pay”. They report that “84% [of their members] considered that the number of pay bands was appropriate to reflect local labour market conditions; only 7% thought this was not the case.”

The National Governors Association also report that they are “not aware of any evidence that suggests making pay locally responsive would improve recruitment and retention” and point out that: “Low cost of living indices tend ... to be associated with social deprivation; these areas may also ... have difficulty attracting the best staff ... As the Government is rightly concerned to narrow the attainment gap between those children from disadvantaged backgrounds and those who are not, bringing teachers’ salaries in line with local market conditions (i.e. potentially lowering them) would possibly be counterproductive and create recruitment difficulties that do not currently exist.”

The government may protest it is only looking at the evidence. But the evidence is clear. There is no case for unpicking the system that has been established. It allows for flexibility and variation within a stable national framework. It’s served us well, and should be reinforced not undermined.

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