18:58 - The House divided: - Ayes: 226 / Noes: 286 - Question accordingly negatived.
19:11 - The House divided: - Ayes: 286 / Noes: 232 - Question accordingly agreed to.
The Minister for the Cabinet Office and Paymaster General (Mr Francis Maude)
I beg to move an amendment, to leave out from “House” to the end of the Question and add:
“notes the importance of recruiting, retaining and motivating staff and keeping tight control of public spending; further notes that the then Chancellor of the Exchequer, the right hon. Member for Kirkcaldy and Cowdenbeath, first proposed a fair framework for local and regional flexibility for pay in his statement to the House of 9 June 2003; supports the Government in asking the widely respected independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets; and believes the Government is correct in awaiting the conclusions of those deliberations before making a decision on bringing forward proposals in respect of public sector pay’.
The shadow Chief Secretary, the hon. Member for Leeds West (Rachel Reeves), began by quoting the Chancellor, so let me quote the Chancellor a little more extensively:
“I can tell the House that the British economy is…better placed to recognise local and regional conditions in pay”.
He continued that, in future, we therefore plan that
“remits for pay review bodies and for public sector workers, including the civil service, will include a stronger local and regional dimension”.—[Official Report, 9 April 2003; Vol. 403, c. 283.]
That was the Chancellor in 2003, the previous Prime Minister. He set that proposal out at time when his advisers were the current Leader of the Opposition and the shadow Chancellor. I do not know whether the shadow Chancellor wrote that passage for the Budget speech—a lot of the Budgets around that time turned out to be “Balls”. Did he write it? Does he agree with it? If not, what has changed in the meantime? [Interruption.] It was clearly the best the right hon. Gentleman could do at that time. I shall come to the history behind the current Government’s approach, because the idea that it is a dramatic new departure is absurd. There is quite a long history, but we now have the opportunity to explore it.
Mr Maude
I shall get started, but I will give way to the hon. Gentleman in due course.
Let me begin by setting out the Government’s approach to this important issue. First, we believe there is a strong case for looking at introducing local market-facing pay and at how that can be done, but let me say clearly that our approach is not about ending national pay bargaining. Pay can be made more responsive to local labour markets within a national bargaining framework. Any benefits from localising pay can be realised without any need to get rid of national pay bargaining.
Secondly, the proposal is not about making further savings. We will continue to operate within tightly constrained overall public sector pay remits.
Mr Maude
I am going to make a little progress, but I will give way in due course.
Those pay remits are currently set at 1% a year. We need those constraints in order to address the appalling legacy of the biggest budget deficit in the developed world, which was left by exactly the people who now complain about its effects. Our approach is not about making further savings, but entirely about creating greater flexibility within those pay remit constraints.
Thirdly, this is not about cutting anybody’s pay. Even if we wanted to, we would not be legally able to do so.
Huw Irranca-Davies
Will the Minister speculate on why the Chief Secretary to the Treasury thinks the sun shines out the backend of this policy, while the Liberal Democrat leader in Wales has told him to stick it where the sun don’t shine?
Mr Maude
That was about as laboured a joke as I have heard in this place, but we will let the hon. Gentleman know.
Like the previous Government, we have said that it is important to look at the level at which public sector pay is set in each labour market over the longer term, which is why, in the autumn statement, the Chancellor announced that there was a case for considering how local pay could better reflect private sector labour markets. He invited the independent pay review bodies to consider the evidence, which is exactly what they are now doing.
Mr Donohoe
I do not know whether the Minister has ever been involved in wage negotiations, but if he looks at the public sector and then at the private sector, he will see that some multinational companies do national negotiations and do not have local rates. Is that not the case?
Mr Maude
They may well have national negotiations. If the hon. Gentleman had listened, he would have heard me say that our proposals do not involve a change to national pay bargaining mechanisms. Actually, though, plenty of companies have preferential pay rates in different parts of the country, as might well make sense in some circumstances. But he clearly did not listen to what I said earlier.
Pay decisions in the civil service, below the senior civil service, are delegated to individual Departments, so it is for each Department to consider the case as it applies to its own work force.
Bill Esterson (Sefton Central) (Lab)
It has occurred to me that Conservative Members were against the national minimum wage when it was introduced. Will the Minister confirm beyond doubt that this is not the thin end of the wedge and that there will not be any attempt to undermine the national minimum wage through regional pay?
Richard Burden (Birmingham, Northfield) (Lab)
I am trying really hard to understand what the Minister is saying. Will he please tell me whether I have got this right—he does not want to dismantle pay structures or cut pay, but he does want to introduce bargaining and flexibility? Does that mean that there could be no pay cuts for any current or future employee as a result of that flexibility? What would that mean in the west midlands, where to get a house, someone has to raise a deposit of twice the average regional salary? In practical terms, is he talking about those pay levels rising or falling?
Phil Wilson
I think the Minister has been a bit selective in quoting Treasury Ministers in the previous Government. Treasury guidance notes put out by Ministers in 2003 also stated:
“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”
In other words, the previous Labour Government were never going to do what this Government intend to do now.
Mr Maude
Given that the hon. Gentleman has not given me the chance to talk about our plans and approach, perhaps he will be patient and contain himself until that moment.
As I was about to say, nothing has yet been decided. Any proposals for each work force must be based on strong evidence. We want to hear from everyone with a contribution to make, and we are committed to making any future decision on the basis of evidence, which is the right way to approach the matter. That is why we have invited the various pay review bodies to consider the matter on that basis.
However, as I said earlier, we are not the only Government to think that there is a case for looking at this issue. The case was recognised by the last Government, and they gave it, I presume, serious thought. Indeed, in 2003, the then Chancellor announced a stronger local dimension to pay review body remits, noting that there was significant scope to increase the flexibility and responsiveness of public sector pay. He told the House:
“With this national framework for fairness in place, it makes sense to recognise that a more considered approach to local and regional conditions in pay offers the best modern route to full employment”.—[Official Report, 9 June 2003; Vol. 406, c. 412.]
Does anyone on the Opposition Benches disagree with that? It seems a considered and sensible approach to me.
Mr Maude
I will not give way, if the hon. Lady will forgive me, because I need to make some progress and Back-Bench contributions are already likely to be constrained because the debate started rather late.
The then Chancellor also said that pay for the civil service should include a stronger local and regional dimension, while in that year’s Budget he set out
“action to increase regional and local flexibility in public service pay”.
As I have mentioned, the then Chancellor’s advisers included the current Leader of the Opposition and the current shadow Chancellor. It seems pretty opportunistic for Labour, at the 11th hour, to produce this motion, when its own Government took the public sector further down this path than we are at this stage contemplating.
Indeed, Labour did not just talk about localised pay; it actually introduced it. In 2007, the last Government introduced localised pay for civil servants across the courts service. They did so in response to the Treasury’s pay guidance, issued in 2007, at a time when, as far as I can make out, the current Leader of the Opposition was the Minister in the Cabinet Office responsible for civil service matters and the shadow Chancellor was the Economic Secretary to the Treasury. Yet that pay guidance, which went out across the civil service, asked Departments that operated across different locations to differentiate between pay levels across regional labour markets. Following that guidance, which was issued under the aegis of the current Leader of the Opposition and the current shadow Chancellor, the previous Government introduced localised pay in the courts service across the country. That was, if I may say so, a sensible and unusually well-judged move, and it has been successful.
Mr Maude
I am going to make progress now.
That policy was introduced at a time when those who are now on the Opposition Front Bench were intimately involved, so it is worth the House asking itself what happened. Did devilish civil servants somehow slide this wicked measure through, as the attention of the current shadow Chancellor and Leader of the Opposition was elsewhere, no doubt overly occupied in trashing the then Prime Minister?
Why is the shadow Chief Secretary to the Treasury taking up valuable parliamentary time attacking in opposition a policy that her own leaders actively promoted in government? It is not as if the Labour party immediately abandoned the idea in opposition that local and regional variations in the cost of living are important. In January, The Guardian reported that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne)—another previous holder of my post—told a private meeting of Labour MPs that housing benefit
“varies locally and so should a benefit cap”.
In fact, he was reported to have said:
“It makes much more sense to have localised caps…in different parts of the country”.
That revealed that the Labour party still recognises in private the very principle that it is today seeking to oppose. It is humbug, Madam Deputy Speaker. Yet again, the Opposition oppose policies that they introduced in government and that they still support in private.
We know what is behind this. It is the Labour party’s union paymasters who are calling the tune. We know that the Labour party ask their union backers which amendments to vote for and which to oppose. We know that under the current Labour party leader more than 80% of Labour’s donations come directly from trade unions—even more than under the last Prime Minister. No wonder Charlie Whelan boasted that it was Unite that won the current Labour party leadership. Yet again, it is Unison and Unite that are calling the tunes. But even the unions are confused on this matter. As my hon. Friend the Member for Cannock Chase (Mr Burley) said, Unison itself has made the case for local variations.
There is a serious case to be made for local market-facing pay. While private sector pay is typically set according to local markets, public sector pay is usually set on a one-size-fits-all basis at national level. As a result, public sector workers are often paid more than private sector workers in similar jobs in the same area. According to the Institute for Fiscal Studies, the overall gap between public and private sector pay averages 8.3%. However, the gap can be as low as virtually minimal in some places and as high as nearly 20% in others.
Academic research also shows that public sector pay is only 40% as responsive to local labour markets as private sector pay. That has potentially damaging consequences for the public sector and the economy. A one-size-fits-all system for public sector pay could limit the number of public sector jobs that could be supported in lower-cost areas. It militates directly against the relocation of public sector jobs to more deprived parts of the country. Private employers looking for staff to set up or grow their businesses might need to compete with much higher public sector wages. The evidence has yet to be examined, but the public sector could be crowding out the private sector in that way, and holding back the private sector-led recovery that the economy needs. Arguably, this makes private sector job creation less attractive. Importantly, it also makes it less attractive to move public sector jobs out of London and the south-east because, without any differential in pay rates to reflect the differential in living costs, it is much less easy to justify the relocation costs and loss of continuity that relocating inevitably involves.
So this approach is about investigating whether this could be another way of supporting local economies, by helping to provide more public sector jobs for the same level of spending and by helping the local private sector to become more competitive and to expand. This could help poorer areas to grow—[Interruption.] Exactly that point was recognised explicitly by the previous Prime Minister. He made exactly that argument. The hon. Member for Leeds West might want to argue with him, but we think that this is one of the few things on which he was right.
More broadly, this Government are determined to support regional private sector growth. Since the last election and the formation of the coalition Government, 843,000 private sector jobs have been created, and promoting regional growth—[Interruption.]
Madam Deputy Speaker (Dawn Primarolo)
Order. I am sorry, Minister. It is not necessary for Members on either side of the House, especially those on the Front Benches, continually to shout across the Floor. This is an important and heated debate—[Interruption.] I do not know why you are tut-tutting, Ms Bray; you have been doing a fair bit of shouting as well.
Mr Maude
We would have made better progress if, every time anyone stood up, the hon. Member for Leeds West had not recited the number of public sector workers in their constituency. She could just have laid the document before the House and we could have taken it all as read. It was a pretty poor substitute for an argument, but I suppose it was the best that she could do.
We are committed to supporting regional private sector growth. As I was saying, 843,000 private sector jobs have been created since the general election, and promoting regional jobs is at the very heart of our growth strategy. In the autumn statement, we announced an additional £30 billion of investment—
Rachel Reeves
I do not think that the Minister wants to cut their pay. Does he think that teachers in Horsham should be paid more than those in Leeds West?
Mr Maude
Under the hon. Lady’s own Government’s policy of introducing academies, it will increasingly be a matter for the management of those academies to set their own pay rates. So the policy that her Government set in train will, over time, lead to differentials coming into existence. Perhaps she will tell us whether she supports the policy of giving academies more freedom to make their own decisions—or is that another subject on which she is going back to her old, left-wing, statist ways?
Rachel Reeves
The last Labour Government did not give less money to schools in Leeds than they did to schools in Surrey. Is that this Minister’s policy?
Mr Maude
Under the last Government, a lot of schools in a lot of places found they were getting a lot less support than they were in other places—funny, that. The fact is that we announced an additional £30 billion of investment in major infrastructure projects across all regions of the UK, and in the Budget we laid out an additional investment of £420 million to stimulate local economic growth.
We have already taken considerable action to achieve strong sustainable and balanced growth that is more evenly shared across the country, but there is a lot more to do. It is not easy, but we have not shirked our responsibility and we will leave no stone unturned to promote a sustainable balance and fair private sector recovery across the UK. First and foremost, that has meant tackling the record deficit that we inherited, ensuring that the UK remains to the greatest extent possible insulated from the storm that undermines our eurozone neighbours. Public sector pay restraint has to play a vital role in that fiscal consolidation. At the same time, by considering the case for local public sector pay, we can ensure that we continue to have high-quality public services across the entire UK and help to support a private sector recovery. I commend the amendment to the House.
The Economic Secretary to the Treasury (Miss Chloe Smith)
This has been an interesting and lively debate. My hon. Friend the Member for Cannock Chase (Mr Burley) rightly disavowed a race to the bottom and instead seeks a race to reality. On the other hand, the hon. Member for Dumfries and Galloway (Mr Brown) thinks private sector rebalancing is dreamland. My hon. Friend the Member for Hexham (Guy Opperman) made a thoughtful, and personal, contribution. My hon. Friend the Member for South West Norfolk (Elizabeth Truss) raised international examples in a very well-informed contribution. My hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) talked of the need for an evidence-based approach and eschewed opportunistic and divisive debate, hints of which we have heard this afternoon.
We also heard from my hon. Friend the Member for Aberconwy (Guto Bebb), who referred to days that we shared on the Welfare Reform Bill and wondered why the Opposition did not support the idea of capping benefits. Perhaps they may tell us today why they favour regionalising benefits but not pay.
Let me talk about what this Government have done, as I wrap up this debate. As my right hon. Friend the Minister for the Cabinet Office and Paymaster General said, this Government greatly value the work and dedication of public sector staff. However, at a time when private sector workers are living with falling wages and job uncertainty, and given the wider pressures we face on the public finances overall, there is a strong case for public sector pay bill restraint. This is why, at the autumn statement, we announced that public sector pay awards will average 1% for the two years following the end of the current public sector pay freeze.
It is also important to look at how public sector pay is set over the longer term. This is why, at the autumn statement, the Chancellor announced that there was a case for considering how local pay can better reflect private sector labour markets and invited the independent pay review bodies to consider the evidence. They will report back from July, and the Government will then consider their proposals. Nothing has yet been decided, and as my right hon. Friend the Minister for the Cabinet Office said, any proposals for each work force will need to be based on strong evidence.
However, it is clear that there is a case for looking at the issue. The pay review bodies have been asked to consider ways to recruit, retain and motivate suitably able and qualified staff across the UK.
Miss Smith
Perhaps the hon. Lady is going to tell me that she is not in favour of that.
Margaret Curran
Can we make it clear that I do not think the Chancellor was suggesting just that more research should be undertaken when he made his statement? Does the hon. Lady believe that a police officer in Hexham should be paid more or less than a police officer in Norwich?
Miss Smith
I will say, for the hon. Lady’s benefit, what I have already said: I look forward to the results of the research that the pay review bodies will be doing.
The gap between public and private sector pay varies significantly around the country, with the Institute for Fiscal Studies calculating a variation of up to 18%. That situation could needlessly limit the number of jobs, including perhaps those of police officers, that the public sector can support, and therefore the services that can be supplied. In addition, it could lead to unfair variations in the quality of public services through higher vacancy and turnover rates in some areas. Finally, it could also hurt the private sector, which often needs to compete for staff with the public sector. The CBI has said that it is essential to compete and that the Chancellor was right to ask for the exploration of the issue.
The need for pay levels that reflect local labour markets was of course recognised by the previous Government, when they took forward pay reform in the courts service. I will just dwell on that, because it has been discussed this afternoon. I suspect that the hon. Lady is not familiar with the fact that staff were given a choice about whether to opt in or out of that reform at that time, and the opt-in rate rose to 97% over 12 months. That is something to be welcomed. Let me jog memories further. The then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), who is again not in his place, set out plans. He said that in our country
“it makes sense to recognise that a more considered approach to local and regional conditions in pay offers the best modern route to full employment.”
Labour Members will wish to reflect on those words.
Jim Sheridan
May I remind the hon. Lady that the previous Government introduced the national minimum wage? Does she agree or disagree with the hon. Member for South Northamptonshire (Andrea Leadsom), who seeks exemptions for employers to exclude people from the minimum wage?
Miss Smith
I agree with what my right hon. Friend the Minister for the Cabinet Office said earlier, which was that this Government and the Conservative party fully support the national minimum wage.
Miss Smith
Does the hon. Gentleman still think that we are all in dreamland when we seek to support the private sector?
Miss Smith
If I tried to answer that question, I suspect that I would soon end up outside the scope of the debate. It is particularly important to note that we need to consider the evidence, which the Chancellor has asked for by asking the pay review bodies to consider the question. That evidence would come into the answer to the hon. Gentleman’s question.
Miss Smith
I will not give way. The hon. Gentleman should rest his foot, as I had to myself several months ago. I wish him well and a speedy recovery.
It is somewhat troubling that shadow Ministers have not been able to explain whether they think it is good for small businesses in their constituency that the public sector pays 7.5% more overall than the private sector. They have not been able to explain, as I have mentioned, why they favour regionalising benefits and not pay. Perhaps they will surprise us all and stand firm against attempts to appease the unions, wait for the pay review bodies’ reports and take a mature decision based on the evidence available. That is what this Government will do. We do not seek to cave in to those who have given around £15 million to the Labour party in recent times.
The introduction of local and market-facing pay could help poorer regions, which I know Members on both sides of the House would welcome. It could do that by providing more public sector jobs for the same level of investment and by helping the local private sector to become more competitive and to expand. Tonight’s debate should not be about regional pay, about ending national pay bargaining or about cutting anybody’s pay. The Government recognise that public sector pay is a complex issue that varies significantly between public sector work forces.
Margaret Curran
Will the Minister explain at what level market-facing pay would be set for a police officer?
Miss Smith
The motion rests on a misrepresentation of the notion of regional or local, and the hon. Lady is attempting a second misrepresentation by bringing police officers in at this point, when the debate ought to be about the NHS and teachers, and the civil service where pay is under the control of central Government. She should know that.
Let me return to what the Government have done and complete my comments. The Government recognise that public sector pay is a complex issue that requires an evidential approach and varies significantly between public sector work forces. That is why we have asked the independent pay review bodies to consider the issue and why any decision will be based on the evidence. That is why we look forward to the outcome when the review bodies report next month.
Question put (Standing Order No. 31(2)), That the original words stand part of the Question.