Public Sector Pay Cap

Lord Tunnicliffe Excerpts

Thursday 13th July 2017 Lords Chamber

[Lord Tunnicliffe (Lab)]

I thank my noble friend Lord Haskel for tabling this debate and the powerful manner in which he summed up the issue before us today.

The Government’s argument seems to rest on two main pillars: first, that responsibility for public sector pay rests with the review bodies, and secondly, that the cap represents a so-called balance between fairness and affordability.

Let us take the review bodies first. Can we please start by dropping the pretence that they are independent? They are not. The Government set the parameters of their scope, therefore limiting their scope to make recommendations. As the NHS review body outlined back in 2011, when the cap was first introduced:

“Any constraints placed upon our role limit our ability to assess the full range of evidence on pay and related matters and potentially undermine the parties’ confidence in an independent Review Body process”.


It went on to say:

“During the period of the pay freeze our role is limited”.


This year, the NHS review body said not only that the,

“current public sector pay policy is coming under stress”,

but that:

“There are widespread concerns about recruitment, retention and motivation that are shared by employers and staff side alike”.


Only this Monday, the teachers’ review body concluded that:

“The number of qualified teachers leaving the profession for reasons other than retirement has continued to rise, and teacher retention rates have deteriorated, including for those with two to five years’ service. The number of schools reporting teacher vacancies and temporarily-filled posts has also increased markedly over the last five years”.


It said that this,

“creates a real risk that schools will not be able to recruit and retain a workforce of high quality teachers to support pupil achievement”.

Last week, during the debate on an Urgent Question in the other place, the Chief Secretary to the Treasury claimed that she respected the “pay review body process”. How can the Government respect the review process while ignoring such concerns?

The second argument the Government fall back on is the need for balance between what is supposedly affordable and fair. But what does this balance look like in practice? As the Resolution Foundation has shown, the Government’s version of balance will mean that some of the poorest people in our society will have 5% less annual income over the next four years while the wealthiest are untouched. How is this fair or balanced?

Apparently, though, this is not all about pay—not when the Government have increased the personal allowance and introduced the so-called national living wage. That argument does not hold up either because, as the latest report from the Joseph Rowntree Foundation shows:

“Pay increases in themselves do little to improve net incomes because they trigger reductions in working benefits, and the income level at which these reductions start has also not risen with inflation”.


Because of inflation, household income for families has fallen 2% in just a single year. Review bodies are not independent and the Government’s policy is not balanced by any definition of the word.

The public sector is the beating heart of our country. It connects each and every one of us to our friends, family and communities. It entrenches in us a sense of worth and value. Those who sustain this effort work tirelessly to maintain the services that are integral to our country. They deserve to stop being taken for granted.

[The Minister of State, Department for International Development (Lord Bates) (Con)]

My Lords, I pay tribute to the noble Lord, Lord Haskel, for securing this debate, and to noble Lords who have taken part in it. In a spirit of trying to shed more light than heat on this issue, I thought it would be useful if, rather than leading off with my set text, I went straight into trying to respond to some of the key questions that have been raised.

A number of noble Lords questioned our commitment to the public services, saying that we were very happy to pay tribute to the workers when crises arose but questioning whether we were backing that up with resource. It will not surprise noble Lords to hear me say that we pay tribute to our public services, particularly given the horrific events that we have seen in recent months. Their performance has been utterly outstanding, as has that of the Armed Forces. How do we respond to that? We respond to the Armed Forces through signing up to the 2% pledge in NATO for defence expenditure, thereby investing in the Armed Forces. We speak up for our nurses and health workers in England, where we have responsibility, through an £8 billion increase in real terms in expenditure on the health service. We have protected expenditure on schools and protected front-line policing. As a result, we have seen that crime is falling, more patients are being treated than ever before and more pupils are being taught in good or outstanding schools.

The noble Lord, Lord Monks, and the noble Baronesses, Lady Blackstone and Lady Dean, spoke about nurses and the issues around nursing. It is absolutely right that the public sector review bodies should take into account the recruitment factors here. It is worth noting that they said:

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


We have seen an increase of 13,000 in the number of nurses but there are also 52,000 nurses in training. That should be welcomed. The noble Lord, Lord Tunnicliffe, will probably not be surprised that I return to the following point. One needs to make comparisons when one talks about average pay in the public sector. The average pay might be set by a pay review body at 1% in terms of an increase but actual pay settlements in terms of pay progression have averaged between 3% and 4% in the health service. The comparison was made with other European countries. The OECD looked at the purchasing-power parity of the average salary of nurses and found that where, in the index, the UK was measured—

[Lord Tunnicliffe]

Would the noble Lord be willing to share with us by letter the source data for those statements?

[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—