The trouble with getting older is that you start thinking you have seen it all before. And just sometimes you have.
It is no surprise that Chancellor George Osborne is reportedly bringing forward proposals in his Budget to move away from national pay determination towards localised pay in the public sector, initially in the DWP, Home Office and Department for Transport. He wrote to the Pay Review Bodies last November asking them to bring forward such proposals, and the NHS reforms provide the hundreds of foundation trusts with the “right to determine pay for their own staff”. The Treasury has already funded generous pay settlements in recent years at the Ministry of Justice and English Heritage to smooth the introduction of local pay structures.
The Government’s ambitions apparently include not just regional pay, but ‘zonal’ pay, so you might, for example, pay teachers in a posh part of Manchester more than those in one of the rougher areas.
Whatever the Treasury may say about the objective being to “create a modern, responsive labour force”, the seductive attractions of more local pay determination to successive Chancellors and Treasury economists boils down to one word: cost. Though the figures are a matter of dispute, private sector pay rates do seem to lag behind those in the public sector by around 10-15 per cent outside of London and the South East. Achieving that sort of reduction in the civil service pay bill is highly attractive to a government facing such a huge public spending deficit, and it argues (with no evidence that I can find) this would also encourage job growth by making private sector pay rates relatively more attractive.
The opponents of these moves, including myself, who witnessed at first-hand the clear failure of similar attempts in the NHS in the 1990s to introduce devolved and local pay, cite three main counter-arguments.
First, there is the ideological or moral argument as to whether we should really be risking making poor areas of the country and low paid employees there even poorer and the rich London and South East even richer, by encouraging what the TUC terms this “race to the bottom”. PCS trade union general secretary Mark Serwotka described the move as “cruel, economically incompetent and counter-productive”. Fairness also comes into the equation as the gender pay gap is narrower in the public than the private sector and lowering the pay of low paid workers in the regions will almost certainly affect female pay rates more than male, widening that divide.
This can be seen from workers’ experiences in social care researched by Jill Rubery; pay for the predominantly female workforce in the expanding private sector care homes market is significantly below that in the declining numbers of local authority-run homes. Social care workers, by the way, receive about £100 a week less on average than road sweepers, and an investment banker can earn in a day what these workers earn annually.
Second, as Serwotka mentions, there is also an economic and performance counter argument to the Treasury’s rationale. What does reducing pay do for a local economy? It cuts demand, which reduces growth. And so, despite the unfavourable economic climate, last year in the USA 18 states raised their level of minimum wages above the federally required minimum rate. The National Employment Law Project estimates that the extra $600 in workers’ pay cheques will add $366 million to the country’s GDP and create more than 3,000 new jobs.
And the UK social care example also highlights another risk: the association between low skills, low pay and poor performance. Last week’s Which reporthighlighting poor standards of elder care is the latest in a sequence of similar criticisms. The Social Care Employers Consortium has called on the government to address the “growing crisis in social care” caused by an under-valued and underpaid workforce. So is this what we can look forward to in our schools and hospitals as well, post these reforms?
Indeed the respected Income Data Service’s analyses suggest that factors such as skill levels are much more important determinants of pay than location in the private sector, and most private sector employers only distinguish between pay in London and the South East and the rest of the country, rather than using complex local and zonal pay systems.
So, thirdly, even if you buy the government’s moral and economic arguments, the practical issues with trying to establish and manage these highly complex local pay systems seem generally to have defeated even their original objective. Think of all the duplication and costs involved with hiring local pay managers and creating pay databases. Moreover, it may defeat other important objectives in the organisation, such as talent management and mobility. An apparently reluctant Vince Cable was on the radio describing the reforms, but couldn’t help mentioning on Radio 4’s Today that “it has got to be done very carefully, for you have to have career progression and that kind of national consideration has to be woven into the story as well”.
Reward expert and director of the Centre for Workforce Effectiveness at the Work Foundation Stephen Bevan concludes an excellent review of this debate as follows: “while the high-level policy objective of Mr Osborne is to reduce the public sector pay bill, experience suggests that it is a lot easier to aspire to this than to deliver.” So, he says, “National arrangements are the ‘least worse’ option and the arguments for change and appetite for it remain very weak.”
HR and reward professionals cannot allow political dogma to obscure the significant risks of repeating the 1990’s experiences with local pay in the NHS, from which we all as taxpayers and receivers of public services are likely to suffer. We should be as forthright in our opposition to these proposals as the TUC. Rebuilding a national pay structure for the public sector like Agenda for Change in a decade’s time might create plenty of work for people like me, if I am still around. But I can assure you, it would provide no pleasure for any of us.