Public Sector Pay Cap

Baroness Blackstone Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Blackstone (Lab)]

My Lords, I want to start by making a general point about setting a five-year pay cap. It is an unsustainable policy, because it is rigid and cannot be easily adjusted according to changes in economic circumstances. When the decision was made to have a 1% cap, inflation was extremely low. Indeed, there were fears of deflation and high unemployment. Moreover, private sector pay levels had still not recovered from their downturn following the earlier economic crash. None of those conditions applies today. Indeed, the pay of many public sector employees has already been eroded by rising levels of inflation and staff shortages are occurring in key areas, such as health and education. In spite of teacher shortages and growing evidence of teachers leaving the profession, the Government have just announced a 1% award. The 1% cap is too crude a method of pay restraint; it is unfair in its impact on the public sector workforce. As several other speakers have said, it constrains what the independent pay review bodies can say, leading to a question of how independent they are.

I want to focus on one important group of public sector workers—nurses. As a member of the Select Committee on the Long-term Sustainability of the NHS, I was impressed by the evidence that we received on the central importance of the sustainability of the NHS workforce. Failure to address the interlinked issue of nurse numbers and staffing standards with pay policy poses risks to the NHS and the quality of the care that it provides.

Does the Minister accept the following facts? Between 2010 and 2017, the pay of health service workers in general, and nurses in particular, has been eroded by inflation, falling by 6% in real terms while, in the economy as a whole, it has fallen by only 2%. If the current cap continues, after inflation forecasts are taken into account, pay will have been cut by 12% in real terms for band 5 and above staff in the decade 2010-20. There is now a shortfall of nurses, particularly caring for adults, of 22,000, which is nearly 10% of the workforce. Does he also accept that the shortfall could increase to 15% of the workforce, unless there are changes in policy?

With respect to the supply of nurses, does the Minister agree that the decision to abolish grants for students doing nursing degrees has led to a large decline in applications for these courses, which has been confirmed in the latest UCAS figures, which came out just this week? Does he agree that Brexit will create further supply problems because, as far as the recruitment of nurses from Europe is concerned, there has already been a decline in the numbers wishing to come to work as nurses in the UK?

This really is a very serious situation, which is likely to lead to an unacceptable decline in the quality of care in our National Health Service, in a context where the demands on it are growing to unprecedented levels, mainly as a result of an ageing population. The situation in psychiatric hospitals, other mental health settings and learning disability settings is particularly worrying, since the percentage decline in the number of nurses there is considerably greater than in acute hospitals. The Government have pledged to attach greater priority to mental health, yet this is happening under their watch.

According to the Royal College of Nursing, just last year, in 2016-17, 45% more UK-registered nurses left the register than joined it. This puts greater pressure and stress on those who remain, who feel that they cannot do the kind of job that they want to do, and on medical staff. This in turn leads to further resignations. The NHS needs a pay policy that enables it to recruit, retain and engage the workforce it requires in order to succeed. The cap on public sector pay must be removed, and it is urgent that this happens.

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[Lord Bates]

I can give that information. It was from the NHS Pay Review Body’s report of March 2017. It said:

“We do not see significant short-term nationwide recruitment and retention issues that are linked to pay”.


Returning to my key point about UK nurses, where the UK is measured at 100 in the OECD index, France, which was cited, is at 84.2. Therefore, I think that average salaries bear some comparison.

I want to turn in particular to the point made by the noble Lord, Lord Sawyer, about the importance of public opinion here—a view that I recognise. The Government are seeking to balance the opinion of public sector workers with that of taxpayers, who contribute to the maintenance of our public services. Frequent mention has been made of comparisons with real wages in 2010—the noble Baroness, Lady Blackstone, referred to that. Of course, 2010 is a particular point at which to make the comparison. The noble Lord, Lord Haskel, will recognise that if you make the comparison with the situation at the beginning of the great financial crisis of 2008-09, you get a different result, because at that point there was a significant reduction in private sector pay, which has recovered recently.

In response to a point made by the noble Lord, Lord Sawyer, taxpayers’ confidence is maintained by looking at reductions in the deficit. I know that that may be greeted by groans in some quarters of the House, although perhaps I am wrong about that, but we should bear in mind that the interest that we pay on the debt—£50 billion—is equivalent to the entire pay bill for the NHS. Therefore, it is simply not true to say that macroeconomic and fiscal responsibility does not have a bearing on the public finances. However, it is true to say that at present we have record levels of employment—we have never seen them at such a high level—and that in itself leads to pressure on recruitment in the professions.

It is also true that, because we are seeking to manage the economy well, interest rates are at historically low levels, and that reduces the cost of living. The noble Lord, Lord Monks, and the noble Baroness, Lady Kramer, referred to the fact that inflation has increased to 2.9%, which is outside the target. We believe that that is associated with short-term exchange rate issues relating to last year’s decision to exit the European Union and that over time the rate will return to being within the 2% target that we want to achieve.

The noble Lord, Lord Monks, quoted the Prime Minister at the party conference and referred to equity between public service employees’ salaries and the taxpayer—a point I mentioned in response to the noble Lord, Lord Sawyer. On 4 July—that is, last week—he said, “It’s all coming out of the same pot. Therefore, you have to, as a government, have a view on how much you are prepared to spend on pay and how much you are going to spend on the day-to-day running costs of the services you provide”. That is a very fair observation and we would go with that.

The noble Lord, Lord Haskel, referred to productivity, which I recognise is important. Between 2010 and 2016, total public service productivity is estimated to have increased by 3%, with growth of around 0.5% per year. This represents a longer, sustained period of growth in public service productivity since the start of the series in 1997. We have also invested £13 billion to improve productivity, supporting Charlie Mayfield’s work, to which the noble Lord referred.

I am very grateful to the noble Lord, Lord Adonis, for having given me notice of the points he raised, and I want to make sure that they are covered. He asked a number of questions about pay. I think that the House will have been in some shock as he quoted the numbers relating to public sector pay for vice-chancellors and the specific example of the University of Bath. The answers may not surprise him but I put them on the record. Universities are independent and autonomous institutions, and are responsible for setting the pay for their staff. As such, government does not have pay controls in place for senior university staff. The Government have no current plans to intervene in universities’ remuneration. Vice-chancellor pay is decided by official university remuneration committees, which include expert representatives from outside the sector. We expect these committees to examine robustly the evidence for pay increases for all relevant staff. As I said, I know that those answers—

[Baroness Blackstone]

My Lords, would the noble Lord accept that, where the regulatory function of remuneration committees in universities is obviously not working properly, as in the case of the University of Bath, the Higher Education Funding Council ought to intervene to see that it is put right? It cannot be accepted that a pay package of £0.5 million is appropriate for any vice-chancellor, particularly the vice-chancellor at the University of Bath.

[Lord Bates]

I certainly undertake to relay to colleagues the views and concerns raised by the noble Lord, Lord Adonis, the noble Baroness, Lady Blackstone, and others in the House to see what further can be done, and I will be happy to write to the noble Baroness when I have done that.

Our position remains that we value the public services. We recognise that we have a duty of responsibility to the people who pay for them and to those who work in them. These are difficult judgment calls but we believe that we are delivering a balanced approach, involving fiscal responsibility to get our financial status in order. It is delivering benefits, whether through average pay growth, through benefits and pensions or through taxation policies. The personal tax threshold has been raised significantly over a period of time, meaning an increase equivalent to £1,000 a year for the average person, and 1.3 million of the lowest-paid people have been taken out of tax altogether.

I am grateful to noble Lords for their contributions to the debate. I will review them to see whether there are any points that I have not responded to and will write to noble Lords accordingly.