Public Sector Pay Policy

Tuesday 5th June 2018 Westminster Hall

[Albert Owen in the Chair]

14:30

[Chris Stephens (Glasgow South West) (SNP)]

I beg to move,

That this House has considered public sector pay policy.

It is a pleasure to serve under your chairmanship, Mr Owen. I refer to my entry in the Register of Members’ Financial Interests and my position as chair of the Public and Commercial Services union parliamentary group.

I shall focus entirely on the pay of civil servants. A few months ago the Government declared—to great fanfare—that the public sector pay cap had been lifted, but is that really the case? On 2 May I asked the Prime Minister:

“Can the Prime Minister confirm that every UK Government Department has budgeted for a derisory 1% pay rise for all its civil servants? Is it fair that workers who collect tax, and who try to make a broken social security system and a broken immigration system work, are getting a real-terms pay cut and are still subjected to a public sector pay cap?”

The Prime Minster responded:

“As the hon. Gentleman knows, we have been very clear that the blanket 1% cap that has taken place over recent years on public sector pay is not an approach that we are taking in the future. Obviously, Departments are funded at a certain level, and it is for Departments then to come forward with their proposals in relation to pay within their Department.”—[Official Report, 2 May 2018; Vol. 640, c. 312.]

In other words, yes. UK Departments have budgeted for only 1%, and it is therefore reasonable to assume that the 1% public sector pay cap still exists and applies to our civil servants. Perhaps the Minister will confirm that the public sector pay cap is in reality still in force.

As the Minister knows, on 19 January 2018 the PCS pay claim was submitted to his colleague the Chancellor of the Duchy of Lancaster and Minister for the Cabinet Office. However, the Chancellor of the Exchequer’s spring statement gave no indication that the Government’s position had changed significantly. To date, all further indications have been that the Treasury’s remit guidance, imminent this month, will in effect retain the 1% pay cap for civil servants.

Following the submission of the PCS claim, meetings have taken place with the Minister and Cabinet Office officials, who stated that, in their view, where no pay cap is in place, there is no additional funding for pay, so any increases would need to come from existing departmental budgets.

[Mr Jim Cunningham (Coventry South) (Lab)]

I thank the hon. Gentleman for giving way and for keeping the 1% pay cap issue alive. Not only have public sector workers had to put up with the cap for several years, which in fact has meant a pay cut, but there have been job losses, including in the probation services. The Government are using the oldest argument under the sun: Departments must find the money. But it is the Treasury that should find the money, rather than cutting departmental funding further.

[Chris Stephens]

I agree with the hon. Gentleman. I was a trade union rep in local government before I arrived in this place, and when the public sector pay cap was first put in place, I remember that the argument used to sell it to public sector workers was that the freeze would protect jobs. As he has said, however, we have instead seen job losses in the Departments and elsewhere in the public sector.

I have a copy of the letter that the Minister wrote to PCS reiterating the position that he had stated in the meeting. However, independent research undertaken by the Centre for Labour and Social Studies on behalf of the PCS came to the following conclusions:

“Any increases in public sector pay would have to come out of Resource Departmental Expenditure Limits”,

which are Departments’ current budgets. It continued:

“departments as a whole will continue to suffer real term cuts to their RDELs up to 2020. In the departments of interest covered by our analysis, only the Ministry of Defence will see an increase…This falls way short of what is needed for a 5% nominal pay rise in each year, and also fails to accommodate annual pay rises of 1%”.

In particular, it said:

“Given current projections of departmental expenditure limits, we conclude that any pay rise for public sector workers across…departments would have to come from cuts to jobs or to public services.”

Delegated pay talks are a key part of the problem on pay in this area. There are—this is staggering—in excess of 200 sets of pay negotiations throughout the civil service and its related bodies. The trade unions require proper talks on pay claims, including exploration of the scope for a more coherent approach to pay throughout the civil service and its related bodies. As I understand it, tentative talks on coherence have been under way for years, but progress has been slow. PCS has had a meeting with the Minister, who I believe agreed to reflect on the points made to him and has responded by leaving the door open to such discussions. However, there is frustration that no further progress seems to have been made.

I hope the Minister can today update the House on the Government’s approach to delegated pay, providing for more coherence for the pay structure for civil servants.

[Dan Carden (Liverpool, Walton) (Lab)]

Does the hon. Gentleman agree that when pay bargaining is delegated to Departments that are being cut by the Treasury, the whole process is an absolute sham? There is no possibility of getting rid of the 1% pay cap because the Departments have themselves been cut.

[Chris Stephens]

I agree with the hon. Gentleman. He makes a valid point. One difficulty arising from having 200 sets of pay negotiations is to do with the Equal Pay Act 1970. How does it operate for civil service pay with so many pay schemes across the board? The Government should reflect on that.

[Mike Hill (Hartlepool) (Lab)]

On equal pay, does the hon. Gentleman agree that we should be celebrating the 150th anniversary of the TUC and taking heed of its recent finding that the gulf between the earnings of younger and older people has increased by 50% in the last 20 years, especially in the private sector but also in the public sector?

[Chris Stephens]

I thank the hon. Gentleman for that, and as a proud trade unionist myself I look forward to signing the early-day motion that celebrates 150 years of the Trades Union Congress. The point he makes is absolutely right: there is a growing pay gap between the older and younger generations. In addition, there is a real challenge on the gender pay gap.

[Rachael Maskell (York Central) (Lab/Co-op)]

The hon. Gentleman is making an excellent speech. I want to draw attention to another inequality in having a 1% pay cap. The lowest earners who get 1% see only a little increase in their pay, compared with the top of the civil service, where they see a massive increase. Surely that inequality must be addressed.

[Chris Stephens]

I agree with the hon. Lady. As someone involved in the trade union movement, I was particularly of the view that we should look at flat-rate claims as well as percentage claims, so that the low-paid got a bigger pay increase. I will touch on some of the issues around low pay for civil servants later.

I hope that the Minister will agree, however, that having more than 200 different sets of pay negotiations for civil servants in UK Departments is frankly nonsense. Towards the end of May, PCS received correspondence from the Cabinet Office seeking a meeting to discuss the pay claim. In May, the PCS annual delegate conference, which I attended to give the PCS parliamentary group report, discussed the issue of pay.

There are different approaches in these islands, such as those of the NHS and the Scottish Government. Funded pay rises have been made available in those two bodies. In the NHS, an agreement for public sector workers has been reached with unions: a funded increase that will see staff offered long overdue pay rises of between 6.5% and 29% over the next three years. Additional funding of £4.2 billion for that has been agreed by the Treasury, meaning that the increase to the NHS pay bill will not come from within existing budgets.

Policy on public sector pay is devolved in Scotland. In the Scottish Government sector, the PCS is moving towards agreed settlements with the employer across all bargaining areas, which include: those earning under £36,5000 receiving 3% plus progression, or 3% plus 1% non-consolidated for those on the maximum pay rate; progression payments of 2.5% plus an additional top-up to the maximum for those five years in the grade; maternity pay increased to 27 weeks of full pay; paternity pay increased to four weeks of full pay; occupational sick pay extended to include all staff on entry; no compulsory redundancy guarantees being extended; and assurances on equality impact assessments.

The Scottish Government have been flooded with applications from civil servants who are employed by UK Government Departments and see a vacancy for the Scottish Government. In Scotland, people who happen to work for a UK Government Department will see many of their colleagues leave to get a better pay rise by working for the Scottish Government. I hope that as part of the competition in many areas between Scotland and England, the UK Government will increase their pay rises to match those of the Scottish Government.

Civil servants deliver cradle-to-grave services daily, from driving test examinations to collecting tax, running our prisons, supporting our armed services, administering our justice system, staffing our borders, renewing our passports, looking after our museums and galleries, supporting the unemployed into work and maintaining our transport system. The civil service is the engine room of the country. Brexit is a key challenge faced by the country. Clearly, it is essential that the civil service is robust and resourced effectively to face that challenge.

The trade union undertook a consultative ballot of members towards the end of last year. The mandate was clear: members in the civil service are against a continuation of the 1% cap and are willing to take industrial action to demand that. In a 49% turnout, 99% of PCS members voted to reject the pay cap and 80% supported industrial action if required. That campaign will continue apace in 2018 in workplaces and in PCS branches and groups.

[Lilian Greenwood (Nottingham South) (Lab)]

The hon. Gentleman is making a powerful case on behalf of public servants. Does he agree that one of the issues is that public servants increasingly feel undervalued? It is very hard for people to give their best at work, particularly when we need them to do the important jobs that he describes, if they feel they are not valued by their employer. That is almost inevitable, given the pay restraint they have suffered over many years.

[Chris Stephens]

I agree with that entirely. I will list the views of civil servants on the public sector pay cap a little later. The hon. Lady is absolutely correct that public sector workers across the board feel undervalued because the 1% pay cap has been in place for so many years.

[Mary Glindon (North Tyneside) (Lab)]

I am intervening as a member of the associate and retired members branch of PCS and as part of the parliamentary group. Further to what the hon. Gentleman said in response to the last intervention, does he think it is ludicrous that there will be civil servants and public sector workers in receipt of universal credit who will be under scrutiny by the Department for Work and Pensions to increase their income to comply with UC rules?

[Chris Stephens]

I agree with that entirely. The vice-chair of the PCS parliamentary group makes an excellent point. A recent survey at the Department for Work and Pensions showed that more than 70% of its staff have experienced financial difficulty in the last 12 months.

With the introduction of universal credit, the point has been made that civil servants who will be in receipt of universal credit due to low pay or being a part-time worker will be under scrutiny by their own Department to increase their income to comply with those rules. That is important, because 18 months ago I secured an Adjournment debate on low pay in the Department for Work and Pensions, which pushed the Department to act. At that time, incredibly, 40% of civil servants employed in the Department for Work and Pensions were in receipt of tax credits. I hope the Minister will look at that.

[Alex Norris (Nottingham North) (Lab/Co-op)]

I am grateful to the hon. Gentleman for making a powerful case on behalf of public servants. Does he share my frustration that we hear the Government talk in reverent terms about the need to tackle poverty, but almost in the next breath they talk about the need for continued pay restraint? There is no understanding of the connection between those two things.

[Chris Stephens]

It is an entirely false economy. According to research by the Scottish Trades Union Congress, 70p in every pound of public sector money ends up in the private sector economy. It would follow that pay restraint in the public sector harms not only public sector workers and their wages, but spending power in the private sector economy. I hope the Government will look at that.

Will the Minister publish the percentage of employees in each UK Government Department who are in receipt of tax credits? I am sure I am not the only Member of this House who will want to know how low civil servants’ pay is across the country. If we had an indication of the percentage of civil servants in each Department who are in receipt of tax credits, we would find out exactly how low pay is in the public sector.

Hon. Members have mentioned the views of public sector workers. I want to list just some of the comments received by the PCS union from across these isles. Fiona works in the Department for Work and Pensions, and this is how she felt:

“The government is seeking to divide us into deserving and undeserving. Our colleagues in universities are seen as deserving, but those who work for government are not. It’s atrocious. If the government expects us to go into the civil service, they can damn well pay us for it.”

Neil, in the Office for Students, said:

“We need to get back to where we were. The cost of living is not waiting for us to catch up.”

Tracey, at HM Revenue and Customs, said:

“We are not getting paid enough to keep up with increases in the cost of living. People are doing the same job as colleagues but they are being paid less because there have been no incremental pay rises.”

Wilfred, who works for the Ministry of Justice, said:

“Civil servants are overworked and do the most important jobs for society. In the MoJ we work for judges and deserve respect for the jobs we do. Our skills should be reflected in our remuneration.”

Nicole, who works for the Department for Work and Pensions, said:

“The question should be ‘Why don’t I deserve a pay rise?’ We deserve a better quality of life. DWP is still one of the lowest paid government departments. The fact that we are office workers doesn’t make it less important that we can't afford to live.”

Richard, who works for the Marine Management Organisation, said:

“I’m now earning less money than I was 17 years ago. Prices have gone up but wages have not kept up.”

Susy, who works for Ofgem, said:

“We work hard to achieve results, otherwise what’s keeping us going? There has to be more than job development - we are not shown respect.”

Gordon, who works for the Department for Work and Pensions, said:

“Since the pay cap was imposed my standard of living has fallen every single year. We are falling behind the private sector and people are leaving the department because of low pay.”

Scott, who works in DES Student Loans, said:

“We provide a vital service to students. The cost of living is not in line with our wages. We want a fair day’s pay a fair day’s work.”

Those are the real concerns of civil servants who work across the UK Government Departments.

There are other concerns, too. Some Departments have been reshaping their services, resulting in office closures and staff moving to other locations. Will the Minister confirm that not all those Departments compensate civil servants for office moves? Does he appreciate that some civil servants experience a double whammy of a 1% pay rise and an office move that causes additional travelling costs?

As the Member of Parliament with a higher percentage of public sector employment among those in work than in other constituencies in these isles, I have campaigned vigorously for the public sector pay cap to end. I listed many reasons for that earlier, such as the fact that 70p in every pound goes into the private sector economy. Increasing pay for civil servants will boost the whole economy and increase spending power. We cannot go on with a system where the Government advocate pay restraint but then spend money propping up low pay in the public sector via the benefits system.

[Julia Lopez (Hornchurch and Upminster) (Con)]

Is the hon. Gentleman aware of how much private sector employees get in his constituency? There is a risk in certain parts of the country, where the public sector is so dominant, that the relative spending power of public sector workers will make it difficult for private enterprises to flourish, because they cannot attract the correct employees to their business.

[Chris Stephens]

I take the opposite view. In areas of high public sector employment, public employees’ spending power keeps the private sector economy alive. They keep jobs going in the private sector with the money they spend, so I am afraid I do not agree with the hon. Lady’s analysis.

It is an honour and privilege to speak on behalf of millions of people employed in the civil service on these islands. I look forward to the Minister responding positively to the issues raised today.

14:53

[Luke Graham (Ochil and South Perthshire) (Con)]

It is a pleasure to speak under your chairmanship, Mr Owen. I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing the debate. I am sure that he will agree with much of what I say.

Public sector pay has been a hot topic for parties across the political divide over the past few years. The 1% public sector pay cap, which was introduced in 2010 by the coalition Government, was seen at the time as a reasonable approach to help to reduce the deficit while keeping pay increases in line with the very low rate of inflation. The cap, which formed part of the Government’s long-term economic plan, helped to get this country’s public finances back under control and ensure that the finances that keep the public sector running got back on to a more sustainable footing.

In recent months and years, with some of the deficit costs having come down and the Government having met some of their targets, we have seen some of that effort and sacrifice bear fruit. That necessary process allowed the UK Government to protect public sector jobs and services, which I believe is why the Scottish National party Administration in Scotland and the Labour Administration in Wales also implemented the 1% pay cap policy.

However, as I am sure hon. Members across the Chamber would agree, that was never intended to be a permanent or even a long-term solution. That is why I am pleased that the UK Government are moving away from the 1% public sector pay policy in favour of a more flexible approach. It is more than fair that that shift in pay policy comes now. However, as one of my hon. Friends mentioned, the policy helped to address some of the issues that were emerging between private and public sector pay. As a result of the great recession, we saw a decrease in private sector pay that was not reflected as severely in public sector pay. We have since seen a divergence, and then a convergence.

[Julian Knight (Solihull) (Con)]

My hon. Friend makes an interesting point. Is the situation he describes not exacerbated by pensions differences? The fact is that the pensions of public sector workers are far more valuable than those in the private sector.

[Luke Graham]

That is right. We need to look at pay, but we need to look at overall packages as well, including pensions and other rights and responsibilities that both public and private sector employees benefit from. I am really clear that the public sector should always be as competitive and attractive as the private sector in both pay and packages, and I certainly do not argue that there should be any decrease in that.

[Neil Gray (Airdrie and Shotts) (SNP)]

The hon. Gentleman appears to be outlining a case for the end of public sector pay restraint. Will he advise us what he feels the Government could do to ensure that Departments are able to fund the pay rises that my hon. Friend the Member for Glasgow South West (Chris Stephens) talked about? Might that include the Treasury investing in those Departments?

[Luke Graham]

Yes, that is the point I am making. Recommendations will be forthcoming as part of the delegated pay reviews. I will come to the NHS shortly, but some of the NHS pay increases that were put forward have been funded. I am sure that the Minister will talk about funding in further detail.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

I am sympathetic to the points my hon. Friend raises, and I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing the debate. The pay review bodies historically have had their hands tied by the Government’s 1% pay cap. Is it time that the Government listened to those independent pay review bodies and implemented the meaningful increases they recommend, given that they have regard to recruitment and retention issues throughout the public sector and particularly in the sectors in which they recommend increases?

[Luke Graham]

I am a Back Bencher, not a Minister, so I am wary of committing the Government, but yes. My point is that where pay increases are recommended, the Government should fund them. Given that inflation is now increasing after a period in which people had to make sacrifices and we had to have more financial control, it is only fair that we ensure that there are sustainable pay increases across Departments and the different sectors of public life to reflect the increases in the private sector.

As real wages grow across the United Kingdom—much like the economy as a whole—I am glad that some hard-working public sector staff are reaping the benefits of the UK Government’s new, more flexible approach. For example, the pay rises of between 6.5% and 29% over the next three years in the NHS in England represent great progress. I welcome the fact that pay increases will be larger for lower-paid staff and smaller for those on the highest salaries. The hon. Member for Glasgow South West mentioned that those increases compare with increases of 3% plus 1% in Scotland.

We should be really clear, because sometimes we do not get the full story on Scottish issues. We speak in favour of some of the pay increases, but it is clear that the increases have been between 6.5% and 29% in the NHS in England, and 3% plus 1% in Scotland, as the hon. Gentleman said. We all face challenges—I just wish the Scottish National party would be more honest about those challenges.

[Neil Gray]

Will the hon. Gentleman give way?

[Luke Graham]

I will, but let me complete this point.

It is right that pay increases have been directed more at people who are just about managing and at those on lower incomes. They should benefit those who really need a pay rise. I note that the devolved Administration in Scotland mirrored the UK Government’s 1% pay policy when it was in place, and I am glad that public sector workers in Scotland will now also receive increases. I hope they are as generous as the ones afforded by the UK Government.

[Neil Gray]

Does the hon. Gentleman accept that the pay differential between the NHS in England and the NHS in Scotland is 1% in favour of employees in Scotland?

[Luke Graham]

We have to be very careful about making generalisations. On a case-by-case basis, especially for some lower-income workers, that 1% differential does not apply. I would be more than happy to talk to the hon. Gentleman elsewhere and go into that level of detail.

We are talking about pay, but the other side of the equation is tax. I am disappointed that the SNP Administration in Edinburgh have decided to increase income tax in Scotland. Anyone who earns more than £26,000—slightly below the average wage in the United Kingdom—is now a so-called high earner and has to pay more income tax than their English and Welsh counterparts. That includes teachers, nurses and doctors. Importantly, it also includes armed forces personnel stationed in Scotland, who now pay more tax than any other British armed forces personnel stationed around the world.

[Neil Gray]

That is not true.

[Luke Graham]

It is.

[Neil Gray]

rose—

[Luke Graham]

I will let the hon. Gentleman intervene, but I will come back on that point.

[Neil Gray]

I am sure the hon. Gentleman understands and appreciates that the terms and conditions of armed forces personnel ensure that there is an even playing field between different areas of deployment. That means that if there are spikes or drops in taxation or any other cost of their employment, they do not have to suffer those themselves. They will get the pay rise, but they will not have to suffer the tax rise.

[Albert Owen (in the Chair)]

Order. Mr Gray will respond to the debate from the Front Bench, so he will have protected time. I ask him to be a bit more disciplined and allow Back Benchers to have their time, too.

[Luke Graham]

Thank you, Mr Owen. I always welcome a lively debate.

To be clear, that pay rise will not come from the devolved Administration that imposed the tax; it will come from the UK Government, who will have to cough up to bridge the gap. It was not me who said that Scotland has the highest rate of tax for armed forces personnel; it was Lieutenant General Nugee at a hearing of the Public Accounts Committee just yesterday. That is fact. It is clear that it will be left to Her Majesty’s Treasury to try to bridge the gap and ensure that people are not disadvantaged.

Scotland was already the most taxed part of the United Kingdom, and nurses, teachers and other public sector staff have been forced to pay, at least in part, for the pay rises they have been given. Money that they have been given through pay rises has been taken away through more tax. That is happening at a time when Scotland badly needs to attract more public sector workers to deal with the horrendous staffing shortages that have developed in the NHS and schools in the past 10 years. The UK Government and the devolved Administration should do as much as possible about that.

Let me make one more point about tax, which is a topic that generates lively conversation across the Chamber and will—and should—continue to be debated during this Parliament. The tax increases in Scotland, which were meant to be a progressive move, deliver only 38p more per week for those on the lowest incomes. That is not progressive; it is pathetic. It shows the contrast between the UK Administration and the SNP Administration in Edinburgh: the SNP does not have a grip on our public services in this day and age, and plenty of people in Scotland are being disadvantaged as a result. The UK Government have shown that it is possible, through a strong economy, to give public sector workers a sustainable pay rise without them having to pay for it through increased taxes.

[Chris Stephens]

Can I bring the hon. Gentleman back to reality? Each and every UK Government Department has budgeted for a civil service pay rise of 1%. The Scottish Government have taken a different approach. Does he not acknowledge that in reality the public sector pay cap is still in place for employees who work for the UK Government?

[Luke Graham]

I will not speak for the Minister, who I am sure will cover this, but the pay rises of 6.5%-plus in the NHS are being fully funded. I am sure that as recommendations from other pay review bodies come through, they will be funded, too.

[Chris Stephens]

rose—

[Luke Graham]

I am sorry; I am finishing. I am sure the Minister will come back on that. The simple point is that the public sector does deserve a pay rise. It should be one that is sustainable but one that we constantly review. I 100% agree with the Government’s more flexible approach. We should maintain those public sector pay rises and always ensure that, especially as the Government go into more challenging circumstances and we try to be truly global Britain, public sector pay and the packages that surround it are just as attractive and rewarding as every private sector role, no matter where in the United Kingdom.

[Several hon. Members rose—]

[Albert Owen (in the Chair)]

Order. Four Members are indicating that they wish to speak. I will bring in the Front Benchers at half-past three, so if Back Benchers take about seven and a half minutes each, they will have equal time.

15:01

[Grahame Morris (Easington) (Lab)]

Thank you for your courtesy, Mr Owen. It is a pleasure to serve under your chairmanship. I thank my good friend the hon. Member for Glasgow South West (Chris Stephens) for securing this timely and important debate and for setting out with such clarity the arguments on public sector pay and properly funding the Departments. He did a fantastic job.

During the Whit recess I visited my local HMRC tax office in Peterlee. I thank Linda Hughes, the full-time officer, and the Public and Commercial Services Union local branch reps and local management for facilitating my instructive visit. Valuable work is done at the office in Peterlee, but it is threatened with closure. Almost 500 workers will be relocated, some temporarily to the Washington office, and some will face a considerable additional commute to Newcastle, where jobs are to be centralised, if they want to maintain their employment.

The purpose of my visit was to listen to the concerns of PCS members—the employees—but I saw in the office on the PCS noticeboard a sample of the figures for workers who had lost income because of Government pay restraint. On average, they had lost about £3,000 a year directly as a result of the imposition of the civil service pay cap. Perhaps if the Minister were to visit my constituency and meet some of the workers, he might understand the value of public sector workers and consider paying them properly.

Since the economic crash in 2008, public sector workers have been subject to unjustifiable pay constraint policies designed to make them pay for a financial crisis not of their making. A Government Back Bencher said earlier that that had made a substantial contribution to deficit reduction, but surely if we properly funded Departments—HMRC in particular—we could have achieved that deficit reduction through many other avenues, not least closing tax loopholes and making individuals and corporations who are avoiding their taxes pay their fair share.

[Chris Stephens]

Does the hon. Gentleman share my frustration that there are 4,000-plus employees chasing DWP social security fraud, estimated at £1.2 billion, and in HMRC’s wealth unit there are fewer than 500 employees chasing tax avoidance of £70 billion?

[Grahame Morris]

The hon. Gentleman is correct. I hope the Minister reflects on that and applies resources appropriately so that we can recover for the Treasury the maximum revenue from those who are avoiding paying their fair share of tax.

[Luke Graham]

Will the hon. Gentleman give way?

[Grahame Morris]

I will. I cannot refuse the hon. Gentleman as he gave way so many times.

[Luke Graham]

I thank the hon. Gentleman. I acknowledge that there is still work to be done on our tax code, but does he recognise that since 2010 a number of measures have been brought in to close tax loopholes, which have yielded some £5 billion in extra tax returns and tax revenue?

[Grahame Morris]

I recognise that efforts have been made to close the tax gap, but the publication of the Panama papers and various revelations indicate that it is much larger than had been previously estimated. In my humble opinion, it is counterproductive to get rid of skilled and experienced tax collectors employed at offices such as Peterlee in my constituency who have expertise in this field. We would be better off retaining that expertise and allowing those collectors to get on with the job we have trained them to do.

The imposition of pay restraint has compounded issues raised by the hon. Member for Glasgow South West and my hon. Friend the Member for Liverpool, Walton (Dan Carden) such as the generational pay gap and equal pay. The system includes discriminatory practices nearly 50 years after the Equal Pay Act 1970 and any Government should be ashamed that such problems are still evident.

It is clear from independent research undertaken by the Centre for Labour and Social Studies on behalf of the PCS that any increases in public sector pay would have to come from the resource departmental expenditure limits—the departmental budgets for current spending. It is disingenuous of Government to suggest that pay claims—even those recommended by independent pay review bodies—will be funded when the departmental expenditure limits do not reflect those awards. Departments as a whole will therefore suffer real-terms cuts to their resource departmental expenditure limits up to 2020. That falls way short of what is needed for a 5% nominal pay rise in the current year, and it fails to accommodate annual pay rises of 1%.

Given current projections of departmental expenditure, the research concludes clearly that any pay rise for public sector workers across listed Departments would have to come from cuts to jobs or to public services. It is a great deception. We must be careful with our language in terms of deliberately misleading anybody, but we should be straight about this. It is a cause of instability to promise constantly that the public sector pay cap is temporary when it is applied year on year. Eight years down the line, we still have effectively a public sector pay cap. In that time, prices have risen by 22%, but public sector pay has risen by just 4.4%. Wage freezes and the Government’s pay cap have lasted throughout that time, bringing financial misery to public service workers and their families and causing huge damage to services.

[Rachael Maskell]

Will my hon. Friend give way?

[Grahame Morris]

One last time, and then I will draw my remarks to a close.

[Rachael Maskell]

Does my hon. Friend recognise that many public servants have been down-banded and as a result given up more money and experienced even more detriment than that from the increases of only 1%?

[Albert Owen (in the Chair)]

I call Grahame Morris to wind up.

[Grahame Morris]

I will be quick, Mr Owen. I agree with my hon. Friend the Member for York Central (Rachael Maskell). There have been numerous surveys. A recent one by Unison showed that almost 73% of respondents have had to borrow money from family and friends to get by. We know anecdotally about civil servants using food banks, and workers in my constituency are struggling to support themselves and their families. I do not think we can run public services on the backs of poorly paid public sector workers. Something must be done to lift the cap and properly fund Government Departments.

15:10

[Julian Knight (Solihull) (Con)]

It is a great pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this important debate.

Let us first get something straight about the British civil service in devolved Administrations and in England and Wales. According to the international civil service effectiveness index, this country is fortunate to have the finest civil service in the world. Sometimes in our surgeries we have little problems come to us, but we have to realise that for every situation we see, things might not be so bad and there are thousands of cases that civil servants get right and the decisions made are in many instances spot on. Compared to many other countries, as we travel around the globe and become involved in political discussion with people from other nations, the UK civil service is incredibly honest and has a code of ethics that is an example to the world. It is important to recognise that fact here today.

Over the past decade both Labour and the Conservatives have had to make difficult decisions about how to prioritise public spending while reducing the deficit. However, we are now in a position to lift the pay freeze and make the investment needed to help the service maintain its world-leading position.

According to the Treasury, roughly £1 in every £4 of public spending is spent on pay. After the crash, therefore, politicians of all parties, including Labour and the Scottish National party, recognised that restraints on public sector pay had a necessary role to play in bringing the deficit under control. That was absolutely the correct choice to make at that time. We have to put this into context. A GDP debt of 11% is enormous. We can cope with that for a year or two, but not for a sustained period. We have to get it under control. If we do not, the markets go against us, the country ends up borrowing at far higher rates of interest, and we end up going down the road of Greece and Spain where we have seen public sector pay actually cut: I do not mean in real terms, but actually cut by up to 40%. People’s old-age pensions and fixed pensions were cut at the most vulnerable time.

[Julia Lopez]

Will my hon. Friend give way?

[Julian Knight]

I will give way, although I am conscious of the time.

[Julia Lopez]

I thank my hon. Friend for giving way. I totally agree with him. Although there has been a public sector pay cap over the past years, that does not tell the whole story. Does he agree with me that across much of the public sector during those years, pay increased automatically with every year served because it had been contractually agreed before the cap came into force? Also, staff could move between bands, so it is not the case that there was completely flat pay. It is more nuanced.

[Julian Knight]

My hon. Friend makes a fair point, but it is right and proper that the Government now take into due consideration the independent pay review bodies so that the 1% cap is dispensed with over time. However, I take my hon. Friend’s point in its entirety.

[Rachael Maskell]

Will the hon. Gentleman give way?

[Julian Knight]

I am really conscious of the time. I apologise.

Not only must the public sector modernise to keep pace with the evolving needs and expectations of modern Britons but it is absolutely essential that the civil service is equipped to take on the new responsibilities that will fall to the Government as we exit the European Union. It is worth remembering that the pay freeze has allowed public sector managers facing tough budget constraints to save jobs. I have a problem with the statement made by the hon. Member for Glasgow South West. If Departments pay more than 1%, there will be job losses. In fact, if there had not been pay restraint, we would have had more job losses. The point is that that pay restraint meant we were able to keep more people in employment. That is an important point to make. Many people in the public sector have taken that very much on board, but I know that over time patience has worn thin. I will make one other point about the hon. Gentleman’s speech. I imagine the 200-plus pay negotiations are inefficient, and I want to convey that to the Minister today

Of course, the purpose of austerity is always to return the public finances to a point where we can safely and responsibly start making the investments that Britain needs, and I am glad that the Government are now in a position to reconsider the public sector pay freeze. Nor is pay the only way in which Ministers are investing in civil servants. In a speech on 24 January, John Manzoni, the chief executive of the civil service, set out the sheer scope of the modernisation programme currently under way, and a key part is investing in the people who make the service what it is.

For example, the Digital Academy is equipping 3,000 civil servants a year with new skills that will help to transform the way we deliver services, and the new Data Science Campus in Newport is going to train up to 500 fully qualified data analysts for the Government. That is absolutely crucial at this particular time. A concerted drive to streamline the number of Government buildings will help to ensure that the great majority of civil servants are able to work in modern, collaborative environments that will help them to fulfil their potential. The Assessment and Development Centre, launched in 2016, has assessed more than 1,000 people to help them progress in their careers and make sure that the civil service meets the same professional standards that prevail in the commercial sector.

Such long-term investments will benefit not only service users but civil servants. Providing modern working environments, clear career pathways and strong development support is as important to attracting and retaining the best people as competitive pay.

15:09

[Stephanie Peacock (Barnsley East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing this important debate and commend him on his work in championing workers’ rights.

It is particularly relevant, as we celebrate 150 years of the Trades Union Congress, to mark the vital work that our trade unions continue to do in fighting for the rights and pay of public sector workers across the country. On this note, I refer members to my entry in the Register of Members’ Financial Interests and I declare an interest as a proud member and former officer of the GMB trade union.

We have heard about the impact that the Government’s damaging pay cap has had on our incredible and hard-working public sector staff in the civil service and beyond. The Government decided to make cuts off the backs of committed staff who are vital to keeping our public services up and running, and that has continued for far too long. I want to describe the impact that the pay cap has had in my constituency of Barnsley East.

Average wages in Barnsley are around 10% less than the national level. Child poverty is significantly higher and social mobility is much lower than the UK’s average. For years now, the pay cap has forced even greater strain and pressure on an area that often finds itself struggling to get by. As a former teacher myself, I know the impact that that can have on the frontline. Inflation results in real-terms pay cuts. Staff struggle to get by and morale reaches rock bottom. It is no surprise, therefore, to see an exodus of public sector staff.

Between 2010 and 2016 the Yorkshire and Humber region lost around 47,000 public sector employees. That is 9% of the total public sector workforce in the region, and it is much higher than the UK average loss. We have seen a retention crisis in our schools as teachers leave in droves. More and more crucial posts in our NHS services are going unfilled.

[Afzal Khan (Manchester, Gorton) (Lab)]

My hon. Friend is making an excellent speech. The new pay deal for NHS staff is a rise of 3% next year, and for the following two years it is 2% and 1%. If inflation continues as it is now, that will effectively be a pay cut for NHS workers. Does she agree that that will make the situation worse?

[Stephanie Peacock]

I do agree with the very important point that my hon. Friend makes. My mum worked in the NHS for nearly 40 years and she has seen the impact that the cuts have had on the frontline. It is not only our NHS that is affected. Our local police forces are doing their absolute best with what they have, but numbers have decreased considerably. Right the way through our region and locally in Barnsley, public sector workers have been forced into leaving the sector as their pay packet does not stretch as far as it did and their morale is not as high as it was.

The public sector pay cap is not the only reason for the exodus, but there is no denying that it is a considerable part. Importantly for an area such as my own where times are already hard enough, the cap impacts not only on the employees, but on the services as a whole. As talented, committed and hard-working staff leave, our public services suffer. In my area of Barnsley, much like in the rest of the country, the pay cap is an attack not just on workers, but on our vital public services that they help to provide.

15:19

[Hugh Gaffney (Coatbridge, Chryston and Bellshill) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Owen, and I thank the hon. Member for Glasgow South West (Chris Stephens) for securing this debate.

There has been a public service pay freeze for seven years, held at 1%. Now the Government say there can be a pay rise, but only according to budgets, and it may damage the Chancellor’s Treasury plans. Already the Government are playing worker against worker, telling some workers they can have a pay rise, but others they will need to wait.

When the word “budget” is used, what we are really saying is “job losses”. We have already seen what happens when job losses are created: for those staff who can keep their jobs it creates more work and pressure, and they are told, “Be grateful you have a job.” Is it any wonder that stress levels and illness at work have multiplied? The trade unions are right to ask for a bigger rise. It is their duty to speak up for workers, and I say again, as I have said since I came to Parliament last year: join a trade union today. People’s rights at work are important. Workers have a voice in the trade union movement and I urge all workers to join.

In conclusion, public sector workers need a decent pay rise, not a token gesture. They should not be used as the bargaining chips of austerity. They do us proud as public workers, they protect our public services and they stop the private profiteers.

[Albert Owen (in the Chair)]

I remind Members that the debate will finish at 4pm, but the Minister has agreed to give a couple of minutes at the end for the hon. Member for Glasgow South West to wind up.

15:21

[Neil Gray (Airdrie and Shotts) (SNP)]

I am in awe at my constituency neighbour, the hon. Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), for enabling us to have more protected time for the Front-Bench speeches, given what you said earlier, Mr Owen. It is a pleasure to take part in the debate with you in the Chair, and I must add my congratulations to those given by others to my hon. Friend the Member for Glasgow South West (Chris Stephens) on securing this debate, and on his detailed and passionate speech. My hon. Friend’s advocacy in this place and his previous trade union role, as has been acknowledged in the House already, make him ideally suited to lead such a debate. My wife is a local authority primary school teacher and is therefore impacted by public sector pay policy, although, thankfully, not that of the UK Government.

My hon. Friend the Member for Glasgow South West made a valid point regarding the ability of the UK Government to adhere to the Equal Pay Act 1970 when they are engaged in 200 pay negotiations, and the hon. Member for Solihull (Julian Knight) expressed his alarm at such a notion. My hon. Friend also highlighted the incredible statistics on low pay in the Department for Work and Pensions—the irony is not lost, I am sure—and the proportion of staff receiving tax credits. The fact that those workers will now be under additional universal credit conditionality from their own employers represents an incredible state of affairs.

A public sector pay rise, as outlined by my hon. Friend, is helpful for the economy and the private sector, as well as providing workers with the ability to enjoy a fruitful existence. When we add the fact that we are living through the worst decade for pay growth in 210 years, that is a major concern. My hon. Friend also touched on low pay and the situation in Scotland, and the more generous Scottish Government pay offer. He made a good, detailed and passionate speech, and I commend him for that.

I was reprimanded by you, Mr Owen, for jousting during the speech of the hon. Member for Ochil and South Perthshire (Luke Graham). He made a point about the need to end pay restraint. Of course the Scottish Government were the first in these isles to lift the pay cap and fund the pay offer to the workers for whom they are responsible, and the hon. Gentleman appeared to support my call for the Treasury to fund Departments to bring about an end to the 1% cap. I look forward to his next appearance at Treasury questions when he will make that strong point to the Chancellor. He also spoke about the 6.5% pay offer to the NHS in England. That, of course, is spread over three years—a point that has already been made from the Labour Benches. I am sure that the hon. Gentleman was not trying to suggest that that offer is comparable to the 3% being offered on an annual basis in Scotland. My point about the 1% pay differential between England and Scotland is that it includes those in band 1—the lowest paid as well as those in higher brackets.

The hon. Member for Easington (Grahame Morris) made a good speech, advocating for the Treasury to fund an end to 1%. He also talked about the apparent temporary nature of the pay cap. He was right to say that where the UK Government, not the Scottish Government, have responsibility, the pay cap is in effect still in place.

The hon. Member for Solihull also made a good speech. He was right to say that civil servants in Whitehall and across these isles are incredibly talented and do a fantastic job. He also appeared to acknowledge that pay restraint should have been temporary—and should have ended. I challenge him, as I did the hon. Member for Ochil and South Perthshire, to challenge their Treasury colleagues to fund UK Departments to end the 1% cap.

The hon. Member for Barnsley East (Stephanie Peacock) spoke from experience, as a former teacher and also given the impact of public sector pay restraint in her area. What she said was absolutely right. My constituency neighbour, the hon. Member for Coatbridge, Chryston and Bellshill, made a typically impassioned, if pithy, speech, and we were grateful for his contribution.

As has been alluded to, we have made a far more generous offer in Scotland to our fantastic public servants. We look to reward them for the work that they do for us all. To tackle low pay, the Scottish Government have committed to paying the real living wage of £8.75 an hour, as opposed to the UK Government’s minimum wage premium of £7.83 for over-25s and their minimum wage of £7.38 for those between 21 and 24, £5.90 for those between 18 and 20, and £4.20 for under-18s. This year they have also offered a graduated pay rise starting at 3% for workers earning up to £65,500. That rise will benefit three quarters of all public sector employees in Scotland.

[Luke Graham]

I praise some of the devolved Administration’s moves to make sure that there is correct funding for people on lower incomes, but does the hon. Gentleman recognise that the national living wage was brought in by a Conservative Government and it would not exist otherwise? As well as criticising, he should give a little praise, too.

[Neil Gray]

My problem with the so-called national living wage is the fact that it is not national, because it is not available to under-25s, and it is not a living wage, because it does not get near the real living wage. Its branding was clearly an attempt to make it look as though it were the real living wage; that is massively problematic. I acknowledge that it is a large pay increase for some, but not all, of those on the minimum wage. It is important for the UK Government to acknowledge the fact that under-25s in particular are still being penalised.

[Luke Graham]

rose—

[Julian Knight]

rose—

[Neil Gray]

Mr Owen has already reprimanded me for jousting during the debate and has indicated that I should wind up. [Interruption.] By all means I shall give way to the hon. Member for Solihull.

[Julian Knight]

While the hon. Gentleman is being so generous and giving such fulsome praise, will he also be generous in recognising that the Government and the coalition Government raised the personal allowance to such an extent that the very lowest incomes have risen considerably?

[Neil Gray]

I have already stated—this is probably for another debate—that interventions in the tax system are not the most efficient way of targeting people on low incomes. A far more efficient and effective way of targeting them to ensure that they have a proper quality of life would be to increase the rates of the work allowances of universal credit and tax credits. [Interruption.] I think we have said enough on that, and perhaps it is a debate for another day.

The Scottish Government have protected public sector jobs and services for the people of Scotland by delivering on our promise of no compulsory redundancies and an affordable public sector pay increase that reflects the cost of living. It is difficult to compare the pay offer with that in areas for which the UK Government have responsibility, because there is not the same universal pay offer as there has been in Scotland, as outlined by my hon. Friend the Member for Glasgow South West. We see a piecemeal approach from the UK Government, because Treasury Ministers have consistently and belligerently refused to fund a public sector pay rise for all UK Government Departments. That means it is up to individual Ministers to find the money to pay for awards from existing, squeezed budgets.

While this Government rightly praise our emergency services for their response to the likes of Grenfell or the various terror attacks, and they rightly and routinely praise NHS staff, teaching staff, prison officers, Jobcentre and tax office staff, and other public sector workers, they do not match that praise with fair reward. Hopefully, in the summing-up speech, we might finally find some movement from the Minister. The UK Government must follow the Scottish Government’s progressive lead when they publish their civil service pay guidance. They must fully fund an expansion in public sector pay, rather than just lifting the 1% restriction. If the UK Government agree that our public sector workers deserve a pay rise beyond 1%, they need to put their money where their mouth is, as the Scottish Government have done, and fund it.

15:31

[Christian Matheson (City of Chester) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Owen. I offer my congratulations to my good friend, the hon. Member for Glasgow South West (Chris Stephens), who has been a consistent advocate against this disastrous policy. I also thank my hon. Friends the Members for Easington (Grahame Morris), for Barnsley East (Stephanie Peacock) and for Coatbridge, Chryston and Bellshill (Hugh Gaffney), who have all given clear real-world examples of the effect of the public sector pay freeze.

The hon. Member for Ochil and South Perthshire (Luke Graham) and my good friend and, dare I say it, fellow Cestrian, the hon. Member for Solihull (Julian Knight) talked about the genesis of the public sector pay freeze policy, which dates back to the financial crash. I will simply make the point that it was not public sector workers who created the financial crash, but they are the ones who still have to live with the detriment of it, seven to 10 years afterward, while it took Wall Street and the City of London only a couple of years to get back on the big bonus trail. But we are where we are.

The slogan is, “A country that works for everyone”, although that slogan has not aged particularly well. The country is on its knees, facing the largest inequality and division since the 1980s and early 1990s. As we have seen with failures such as Capita, G4S and Carillion, commercial failure is rewarded with more public funding, while our public sector services at the sharp end are being taken for granted.

[Luke Graham]

Will the hon. Gentleman give way?

[Christian Matheson]

Just the once. The hon. Gentleman was very generous with his time, which is why I cannot be too generous with mine.

[Luke Graham]

Understood. I have a quick question: the hon. Gentleman said that inequality had increased and was the worst since the 1980s. Can he quote the source of that data, please? I would dispute it.

[Christian Matheson]

First, I do not necessarily trust the figures from the current Government, because they are well known for cooking the books, but I genuinely suggest that the hon. Gentleman comes down to any food bank—

[Luke Graham]

That is not answering the question.

[Albert Owen (in the Chair)]

Order.

[Christian Matheson]

I suggest that the hon. Gentleman comes down to any food bank and finds out whether its recipients believe that equality is greater or worse.

The Government talk of lifting the public sector pay cap, but that is nothing more than a politically cute headline. After seven years of crippling pay freezes, the real-world consequences of the Government’s policies are half a million children of public sector workers in poverty, while Ministers have dished out a £70 billion tax break bonanza.

[Afzal Khan]

I want to make a point about the children. I have had many constituents come to me raising concerns about school assistant teachers. Some of them in the academies are earning £12,000—a poverty wage—while bosses routinely get salaries of £150,000. Does my hon. Friend agree that that injustice requires action and that we should look at instituting a maximum ratio for boss to worker pay in the public sector?

[Christian Matheson]

That would be a very interesting exercise, and we could certainly look at some of the sky-high pay for the bosses of some of the academy chains, but I will not go into the detail of that just now.

The problem with the modern Conservative party is that it is not at all modern. Old habits die hard. In addition to selling off public assets, they have now turned their attention to asset stripping our public sector workforce itself. As we know, the NHS is currently going through a mass exodus, with 10% of nurses leaving last year alone and over 100,000 vacancies across the service. The decision to scrap the pay freeze should have been made years ago. Landman Economics and the Trades Union Congress—I join colleagues across the House in paying tribute to the TUC on the 150th anniversary of its founding—estimate that there were real pay cuts and a loss of 13.3% between 2010 and 2018 for health and education workers, and 14.3% for public administration workers. Those figures have been reiterated by the Royal College of Nursing, which says that this has,

“damaged the morale and finances of NHS staff”.

Having spoken to numerous public sector constituents living from pay cheque to pay cheque and having to choose between heating or food, I suggest that that is a polite understatement.

[Dr Poulter]

The hon. Gentleman makes a fair point. I draw attention to my declaration in the Register of Members’ Financial Interests in making this intervention, but there has been great reliance on agency and temporary staff in both the education sector and the NHS as a result of the failure to retain and recruit staff in many areas. Does he agree that improving the terms and conditions and the pay of NHS staff would help to address that and would improve NHS finances overall, and that it is a short-sighted Treasury that does not take note of that point?

[Christian Matheson]

The hon. Gentleman is very experienced in matters of health and the NHS, and I suspect that what he says has real merit. Frankly, there are private companies offering bank staff across the NHS and making a large amount of money that would be better spent on frontline services and on paying staff more than the 1% pay cap. I thank him for his contribution.

We have all heard the heart-wrenching stories of public sector staff having to work two jobs to pay their bills or having to use food banks just to eat. This is modern Britain, where our greatest national treasure and our most valuable assets are treated with the same contempt and disregard that tax-dodging conglomerates have for our country. The Chancellor agreed to a below-inflation pay increase for NHS staff of 6.5% over three years on the condition,

“that the pay award enables improved productivity in the NHS”.

In real terms, that means forfeiting a day’s holiday each year for less money. Public sector workers have been cheated out of thousands, have had their pensions negatively affected and have now had their workload increased for less money.

If hon. Members visit any hospital, such as the Countess of Chester hospital in my constituency, they will see the NHS running on the goodwill of its staff. I know of health care assistants on wards who will work a 12-hour shift with barely a 10-minute break. They do that because they believe in what they are doing, but they are already working to maximum capacity and productivity, yet the Government still demand more to earn a pay rise that they have, in reality, already earned several times over. If hon. Members visit any school, where cuts still bite despite Government promises of more cash, they will find headteachers worried that any pay rise granted by the Government will have to be found from existing school budgets—the usual Conservative tactic of passing the responsibility on to someone else.

The hon. Member for Glasgow South West and my hon. Friend the Member for Easington referred to the study by the Centre for Labour and Social Studies on the terms of civil service pay rises. It is the same tactic. We have heard that the pay rise would have to come out of resource departmental expenditure limits for current spending; yet, as we have also heard, Departments as a whole will continue to suffer real-terms cuts to their RDELs up to 2020 and, of the principal Departments covered, only the Ministry of Defence will see an increase in this area of its budget. They made that point clearly, and it calls into question whether the Departments will be able to award pay rises of more than 1%; in fact, they might not even be able to raise that 1%.

Our police and prison service staff were offered a 1% increase and a 1% bonus, which will leave them with, yet again, a below-inflation increase. The chairman of the Police Federation said that staff had been left “angry and deflated” and had experienced a 15% decrease in real spending terms compared to seven years ago. Prisoner numbers are up and are increasing by an average of 3.5% per year, while the number of frontline prison officers, who have been offered a below-inflation 1.7% increase, has remained static.

The pay cap may have been verbally ended, but there is no evidence of its ending in the real world. Take-home pay, in real terms, has not increased. The quite shocking reality is that less than 4% of public sector workers will benefit from the Government’s decisions last September, and no further spending or new money has been made available in the autumn or spring Budgets. What makes one part of the public sector more worthy of being paid fairly than another? Even if the pay cap was genuinely lifted, it would not make up for the loss of thousands of pounds in the past—and indeed in the future, as a knock-on of the pay freeze now. One advantage of the pay cap is that, by keeping wages low, it makes it easier for parts of the public sector to be privatised, and for the privateers to make bigger profits off the back of low-paid but hard-working employees.

I will finish on a point also made by the hon. Member for Glasgow South West, first about pay in the private sector. For many positions in the private sector, public sector roles and pay increases are used as a comparator. Squashing public sector workers’ pay keeps some private sector pay deals flat as well. By crushing the pay of several million public sector workers, billions of pounds of spending power is taken from the private sector, as the hon. Gentleman said. I imagine that very few civil servants, school dinner ladies or police officers salt away their money in offshore tax havens. They spend it here in the UK in the private sector, which then pays the taxes to support public services. The pay freeze is therefore not just unfair—it is bad economics.

For the record, I will wind up by suggesting that the next Labour Government will lift the public sector pay cap for all public sector workers. We demand nothing less from this Government. In “Funding Britain’s Future”, Labour set aside a costed £4 billion to ensure that every public sector worker will get an above-inflation pay rise. The pay review bodies have been operating under the constraint of a Tory 1% cap for eight years. The Government must now lift the pay cap across the whole public sector, rather than playing one group of workers off against another.

15:41

[The Parliamentary Secretary, Cabinet Office (Oliver Dowden)]

It is a pleasure to serve under your chairmanship, Mr Owen. I congratulate the hon. Member for Glasgow South West (Chris Stephens) on securing the debate. I know that, in his role as chair of the PCS union parliamentary group, he takes a keen interest in matters relating to the civil service—as do I, as a responsible Minister.

This has been a valuable debate, with intelligent contributions from most—not all—hon. Members. I think I will be able to address most of those points in my speech, so if hon. Members will forgive me, I will not go into detail at the beginning. However, I shall try to cover any remaining points at the end of my remarks, because I am conscious of how much time we have left.

The starting point has to be the role of civil servants. I know from my experience—both recently as a Cabinet Office Minister and in the five years I spent in Downing Street as an adviser—the standard of our civil service. I have worked with some of the most genuinely committed, talented and hard-working public servants in our country, and I pay tribute to every one of them. At a time when our country faces many challenges, not least how we deliver Brexit, we can rely on our civil servants to help us. I see that every day in my role as a Minister, whether in the groundbreaking work of the Government Digital Service or the critical work of our civil contingencies team. Day in, day out, I see the tremendous quality of the work that they deliver.

The starting point for me and the Government is that all civil servants deserve to be rewarded for the work that they do, so that we can attract the brightest and the best. At the same time, that has to be balanced against the wider constraints faced by our public finances. I will set out some context. The shadow Minister spoke about who caused this situation, so let us remember. When we came into government in 2010, the UK had the largest deficit in its peacetime history. We were borrowing £1 for every £4 or £5 that we spent. Who caused that? It is quite clear: the last Labour Government. We had to deal with that legacy.

In that context, I make no bones about the fact that we had to take some very difficult decisions. As has been said by many hon. Members, including my hon. Friend the Member for Solihull (Julian Knight), one of those difficult decisions, given the proportion of public expenditure accounted for by public sector pay—about a quarter—was that public sector pay had to be restrained, which is why we introduced a pay freeze for the first two years of the Parliament, followed by the 1% pay cap.

[Christian Matheson]

I am most grateful to the Minister for giving way; I will only intervene once. If what he says is the case, can he explain how the last Labour Government were responsible for the crash of the sub-prime mortgage market in the United States, which caused the crash here?

[Oliver Dowden]

The problem was that the last Labour Government did not fix the roof while the sun was shining. We entered this situation as the least well prepared of any G7 country, so that when we faced those challenges, instead of having a robust fiscal situation, we were already borrowing.

[Chris Stephens]

I want to deter the Minister away from this Tory buzzword bingo, so will he explain to us what that has to do with public sector pay?

[Oliver Dowden]

Forgive me; I thought I made that very clear at the beginning. When we inherited such an enormous deficit, we had to constrain public expenditure. Given that public sector pay accounts for a quarter of public expenditure, public sector pay had to play its part. That is why we initially introduced a freeze, followed by a 1% cap from 2013 to 2017.

Those were difficult decisions, and I genuinely pay tribute to all our civil servants who had to live within that constrained pay deal. However, it is worth making a few points in relation to that. The first is that the median civil service salary has increased by 15% since 2010, which is actually the same as in the private sector. Indeed, it is greater than other parts of the public sector.

Many hon. Members also raised the gender pay gap, which is important. Clearly, more progress needs to be made, but again it is worth looking at the figures. The pay gap for full-time employee civil servant salaries is 7.2% for the mean salary and 11% for the median. That compares with 13% and 15.4% in 2008, so we are making progress, but I do not deny that we need to progress further.

[Dr Poulter]

Adjusted for age, sex and other determinants, the pay gap is actually about 3%. I am sure my hon. Friend will want to clarify that point.

[Oliver Dowden]

I thank my hon. Friend for that helpful intervention; I am absolutely sure that he is correct.

Inequality was also raised, but again let us look at the actual figures. Income inequality is down since 2010, and is lower than at any point under the last Labour Government, so let us start with the facts of the situation. Not only that, but we have helped the lowest paid. For example, when the freeze was introduced, we ensured that anyone earning under £21,000 received at least a £250 increase in their pay.

In addition, as many of my hon. Friends have mentioned, we introduced the national living wage, the effect of which has been to benefit more than 2 million people, leaving them more than £2,000 better off since its introduction. As a result, figures from the last two years show that the lowest paid in our labour market received pay rises almost 7% above inflation, and many of those who benefited were our lowest-paid civil servants. Indeed, the overall picture shows the salaries for junior grades of civil servants remaining comparable to private or public sector equivalents, and in total remuneration both administrative assistants and administrative officers—the lowest paid in the civil service—are paid more than their private and public sector equivalents in London.

[Julia Lopez]

My hon. Friend is making a strong case for the reasoning behind the Government’s decisions. However, many of us are concerned that we are now seeing false economies. For instance, restraining public sector pay is leading to increases in agency costs and a loss of talent, which has reduced productivity in some sectors. We now need to look at what those costs are. What analysis has he done of those costs versus the costs of increasing pay?

[Oliver Dowden]

My hon. Friend is absolutely right, and in a moment I will come to the fact that we have actually lifted the 1% pay cap across the board.

However, I will make one further point on the measures the Government have taken to help the lowest paid—and, indeed, all workers. I am referring to the increase in the personal allowance. When we came to power in 2010, the personal allowance—the tax-free allowance—stood at £6,475. It now stands at £11,850. That is near enough a doubling, and it means that any basic rate taxpayer will be more than £1,000 better off compared with 2010. Through a combination of ensuring that we have a national living wage and tax cuts, we have ameliorated many of the impacts of the necessary public pay constraint, which we had to introduce. In addition, we have frozen fuel duty, saving the average driver £850 compared with pre-2010 plans.

[Neil Gray]

The Minister has stated that the Government have ended the 1% pay cap, but he has not yet argued for the Treasury fully to fund that for Departments, so perhaps he can explain this point to the House. If he advocates an end to the 1% cap, what percentage pay rise does he think would be acceptable to our public sector workers, and will he argue with his Treasury colleagues to see that properly funded for all Departments?

[Oliver Dowden]

The hon. Gentleman talks about the Treasury paying for it. The Treasury does not have any money of its own. It gets money only in three ways: it taxes people, borrows or cuts spending elsewhere. We need to be honest about where the money will come from to pay for any rise.

I will come on to it in a moment, but briefly, we set this out in the spending review; we budgeted for a 1% pay rise across the board. We have now removed the requirement for a 1% rise. That creates two further opportunities. The first is that there will be flexibility, if further efficiencies can be found, to further increase pay, above 1%. In addition, if there is a significant change in working practices that can justify a significant pay rise, a full business case can be made, and that will allow the funding of a larger pay rise.

[Chris Stephens]

The Minister now appears to be suggesting to the House—I just want to double-check that what I heard him say was what he said—that each Department has budgeted for 1%. If that is the case, surely those of us who are arguing that the public sector pay cap has not ended or been lifted are correct. Is that the case, Minister?

[Oliver Dowden]

The cap has been removed; it is no longer the requirement that public sector pay rises be limited to 1%. The situation in the spending review was clear: there was a budget for a 1% rise. If Departments wish to go further than that, they need to find efficiency savings. My right hon. Friend the Chancellor of the Exchequer was perfectly clear about that in the autumn Budget.

My final point in relation to the overall terms and conditions for civil servants is about the amount of pension contribution that is made. This point was made by my hon. Friend the Member for Ochil and South Perthshire (Luke Graham). If we look at the figures, we see that for a civil servant on the median salary of £25,900, the Government provide £5,400 in pension contributions. That is the equivalent of an extra 23% on their basic pay and it is something that is not available to most people working in the private sector.

Difficult sacrifices have been made, but as a result we are finally starting to live within our means. Rather than borrowing £1 for every £4 we spend, we are borrowing £1 for every £10. That means that we are still living beyond our means, but it gives us some scope to remove the blanket ban, although that does not mean that we can suddenly fund huge increases in public sector pay. My right hon. Friend the Chief Secretary to the Treasury made it clear in September that the across-the-board 1% cap would be lifted. That means that the Government are no longer pursuing a one-size-fits-all policy for public servants.

In 2016, the Government set out five priority areas in the “Civil Service Workforce Plan”. Those areas are expected to have the greatest impact on readying the civil service workforce to respond to the challenges that the United Kingdom will face now and in the years to come. One priority is a commitment to develop cost-effective and flexible reward structures that enable the civil service to attract, retain and develop the very best talent within the pay systems in place.

In practice, there are two elements to civil service pay. I am sure that many hon. Members will be familiar with this, but I will set it out briefly. The pay of senior civil servants, who make up 1% of the civil service, is subject to an independent pay review body process, which is conducted by the Senior Salaries Review Body. Its 2018 recommendations are expected later this month, and we will respond to them in due course.

The second and by far the larger group, and the group to which most hon. Members were referring, is the rest of the civil service. Its pay and grading arrangements have been delegated to Departments and agencies since 1996. The effect of that, which hon. Members touched on, is that each Department makes decisions. As has been alluded to by the hon. Member for Glasgow South West, I continue to discuss this with the PCS, but the flexibility that it gives us is that it enables each Department to determine its own pay levels so that it can meet the needs of its own Department.

The 2018-19 pay remit guidance, which will set out the overall parameters for any future pay deal, will be published shortly. It will provide the range of average awards available to Departments, but it is for each Department to decide how to structure its pay award, and those decisions will be made in the light of their own priorities and affordability and must be discussed and negotiated with their trade unions.

[Chris Stephens]

rose—

[Oliver Dowden]

I am conscious of time, but I will give way briefly to the hon. Gentleman.

[Chris Stephens]

The Minister has been generous. Could he just answer this one question? He and the PCS have had some discussion about addressing the 200 sets of pay negotiations. Is it his intention to continue that discussion to look at whether that is actually an adequate way of funding civil service pay?

[Oliver Dowden]

The hon. Gentleman makes an important point. As he says, I have both discussed and corresponded with the representatives of the PCS on this. I will continue that discussion; I remain open-minded on it, but the point I am making is that one has to balance against that the flexibility that allows each Department to tailor to its own needs. I agree that there is an issue about 200-plus sets of negotiations, but hon. Members will understand that there was a reason for that in the first place.

I should move towards a conclusion in order to give the hon. Member for Glasgow South West an opportunity to respond. I genuinely am confident that as we approach the 2018-19 pay remit guidance, we will continue to strike the clear balance between an appropriate reward for hard-working civil servants and the need to live within our means as a nation, so that we do not continue to borrow more and load up more debt that will burden our children and grandchildren.

15:57

[Chris Stephens]

I thank everyone who has contributed to the debate. It has been a good-natured but serious debate, an excellent debate, on behalf of the civil servants who work right across these islands. We should commend them for the work that they do across all Departments.

The purpose of these debates is to test the Government and to test policy, and I think that what we have discovered again this afternoon is that each and every Department has budgeted for 1% pay rises. That suggests that the public sector pay cap has not ended. I hope that the Minister will commit to negotiating to see the end of the public sector pay cap. Civil servants were not responsible for the economic crash 10 years ago and should not be suffering for it. I hope that the Minister will address low pay in every single Department, because that is of very real concern to many Members of this House.

Question put and agreed to.

Resolved,

That this House has considered public sector pay policy.