Public Sector Pay Cap

Baroness Kramer Excerpts

Thursday 13th July 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I begin by picking up the issues raised by the noble Baroness, Lady Blackstone. She pointed out that, when the pay freeze later relaxed and the 1% pay cap was brought in, it was at a time of fiscal crisis; the economy was in dire straits and the expectation of the Government was of rising unemployment and, potentially, deflation. It was in that context that these measures were brought in. Although of course, during the coalition years, there were cuts in public services, these measures limited the number of people in the public services who lost their jobs and protected against a fair amount of unemployment. But, as the noble Baroness, Lady Blackstone, pointed out, we now live in an entirely different period. We are facing chronic labour shortages in key parts of the public sector and, because pay is now back to the same levels as the private sector, the public sector has to compete aggressively for the kind of talent that it requires to deliver the quality of services that our consumers expect. Yet our public sector workers are facing erosion from real inflation, which is now beginning to bite and is pushing up towards the 3% mark. So the set of circumstances is entirely different. As the Minister will know, there was no intention that any kind of pay restraint would continue beyond one Parliament. This surely has to be the time to completely rethink what has become a completely inappropriate policy.

I pick up on the issue raised by the noble Lord, Lord Cashman. The public sector is praised, quite rightly, in times of crisis for the heroic work that it delivers but it is certainly true—and I think it sticks in the gullet for quite a few of us—that when the Government have had a choice on where to spend money, it has not been on public sector workers. However, we have had significant cuts in corporation tax—I can never see a justification for a cut below 20%—and cuts in capital gains tax, inheritance tax and the marriage allowance. In other words, the praise is heaped upon the public sector worker but the money is shared between completely different groups. It seems to me that there is a time for the Government to align their praise with the way they manage the public finances, and that time is now.

Anyone who works with businesses knows that the ability of any sector to absorb change is somewhat time-limited. Our public services have been through a period of extraordinary change. That creates stress and problems in making further changes. To pick up the point made by the noble Lord, Lord Haskel, we need much greater productivity within our public services but it cannot be done through relentless cutting and relentless pressure. There has to be a period of time for change to be absorbed and for new ideas to come forward. The Government need to look seriously at that issue, which very much ties into their attitude on public pay. The issue of public opinion towards our public sector workers, raised by the noble Lord, Lord Sawyer, also ties into that. I suspect that that is now at one of its highest levels in many decades, as that work has finally been recognised. This creates an opportunity for the Government to work co-operatively with the public—who are in effect consumers of public services—and public sector workers to redesign a system which will work much more effectively for all of us in the future, instead of treating this as a very traditional worker/manager conflict, which is surely outdated.

Relaxing or taking off the 1% pay cap can be done without putting fiscal competence at risk. My party’s 2017 manifesto—I went through it with a tooth-comb—allowed the 1% public sector pay cap to come off, but we still balanced day-to-day spending in 2019-20 by rowing back some of the extraordinary tax cuts that had been made which had offered very little benefit. Therefore, there are ways to retain fiscal competence and to achieve what I think is well deserved—namely, the end of what should have been a short-term pay restraint.