Regional Pay

Baroness Primarolo Excerpts

Wednesday 20th June 2012 Commons Chamber

[Madam Deputy Speaker (Dawn Primarolo)]

I advise the House that Mr Speaker has selected the amendment in the name of the Prime Minister.

--- Later in debate ---

[Mr Maude]

I am going to make progress now.

That policy was introduced at a time when those who are now on the Opposition Front Bench were intimately involved, so it is worth the House asking itself what happened. Did devilish civil servants somehow slide this wicked measure through, as the attention of the current shadow Chancellor and Leader of the Opposition was elsewhere, no doubt overly occupied in trashing the then Prime Minister?

Why is the shadow Chief Secretary to the Treasury taking up valuable parliamentary time attacking in opposition a policy that her own leaders actively promoted in government? It is not as if the Labour party immediately abandoned the idea in opposition that local and regional variations in the cost of living are important. In January, The Guardian reported that the right hon. Member for Birmingham, Hodge Hill (Mr Byrne)—another previous holder of my post—told a private meeting of Labour MPs that housing benefit

“varies locally and so should a benefit cap”.

In fact, he was reported to have said:

“It makes much more sense to have localised caps…in different parts of the country”.

That revealed that the Labour party still recognises in private the very principle that it is today seeking to oppose. It is humbug, Madam Deputy Speaker. Yet again, the Opposition oppose policies that they introduced in government and that they still support in private.

We know what is behind this. It is the Labour party’s union paymasters who are calling the tune. We know that the Labour party ask their union backers which amendments to vote for and which to oppose. We know that under the current Labour party leader more than 80% of Labour’s donations come directly from trade unions—even more than under the last Prime Minister. No wonder Charlie Whelan boasted that it was Unite that won the current Labour party leadership. Yet again, it is Unison and Unite that are calling the tunes. But even the unions are confused on this matter. As my hon. Friend the Member for Cannock Chase (Mr Burley) said, Unison itself has made the case for local variations.

There is a serious case to be made for local market-facing pay. While private sector pay is typically set according to local markets, public sector pay is usually set on a one-size-fits-all basis at national level. As a result, public sector workers are often paid more than private sector workers in similar jobs in the same area. According to the Institute for Fiscal Studies, the overall gap between public and private sector pay averages 8.3%. However, the gap can be as low as virtually minimal in some places and as high as nearly 20% in others.

Academic research also shows that public sector pay is only 40% as responsive to local labour markets as private sector pay. That has potentially damaging consequences for the public sector and the economy. A one-size-fits-all system for public sector pay could limit the number of public sector jobs that could be supported in lower-cost areas. It militates directly against the relocation of public sector jobs to more deprived parts of the country. Private employers looking for staff to set up or grow their businesses might need to compete with much higher public sector wages. The evidence has yet to be examined, but the public sector could be crowding out the private sector in that way, and holding back the private sector-led recovery that the economy needs. Arguably, this makes private sector job creation less attractive. Importantly, it also makes it less attractive to move public sector jobs out of London and the south-east because, without any differential in pay rates to reflect the differential in living costs, it is much less easy to justify the relocation costs and loss of continuity that relocating inevitably involves.

So this approach is about investigating whether this could be another way of supporting local economies, by helping to provide more public sector jobs for the same level of spending and by helping the local private sector to become more competitive and to expand. This could help poorer areas to grow—[Interruption.] Exactly that point was recognised explicitly by the previous Prime Minister. He made exactly that argument. The hon. Member for Leeds West might want to argue with him, but we think that this is one of the few things on which he was right.

More broadly, this Government are determined to support regional private sector growth. Since the last election and the formation of the coalition Government, 843,000 private sector jobs have been created, and promoting regional growth—[Interruption.]

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I am sorry, Minister. It is not necessary for Members on either side of the House, especially those on the Front Benches, continually to shout across the Floor. This is an important and heated debate—[Interruption.] I do not know why you are tut-tutting, Ms Bray; you have been doing a fair bit of shouting as well.

[Mr Maude]

We would have made better progress if, every time anyone stood up, the hon. Member for Leeds West had not recited the number of public sector workers in their constituency. She could just have laid the document before the House and we could have taken it all as read. It was a pretty poor substitute for an argument, but I suppose it was the best that she could do.

We are committed to supporting regional private sector growth. As I was saying, 843,000 private sector jobs have been created since the general election, and promoting regional jobs is at the very heart of our growth strategy. In the autumn statement, we announced an additional £30 billion of investment—

--- Later in debate ---

[Several hon. Members]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. A large number of Members wish to participate in the debate, so it is necessary to change the time limit to a maximum of five minutes for all Back-Bench contributions. It might be necessary to review that before the end of the debate and to reduce it further.

--- Later in debate ---

[Grahame M. Morris]

I agree with my hon. Friend’s analysis.

The other likely negative impact of the Government’s policy is a brain drain from the regions with lower pay to those with higher pay. In my opinion, the Tory party has never understood the values and principles of our public services, which were founded on fairness and equity. What is truly outrageous is that Ministers waste their time targeting low-paid public servants when the real crisis is in the private sector. I believe that those are diversionary tactics, and that, if implemented, they would take more money out of the northern regions, which are already suffering from a lack of demand throughout our economies.

The United Kingdom is crying out for a serious new industrial policy that would reduce regional inequalities and close the north-south divide. A regional pay policy of the sort that the Government propose would only make the position worse, and it lacks an evidence base. Any comparison between public and private sector pay is a very crude measure. There are far more highly qualified workers in the public sector, there is a smaller gap between the top and bottom levels of pay, and there is a smaller gender pay gap. The majority of low-paid work in catering or cleaning, for example, is in the private sector. Similar roles in the public sector are often outsourced, which skews the figures still further.

The hon. Member for Warrington South (David Mowat) asked about figures relating to growth rates and relative performance. Under the last Labour Government, the rate of growth in my region, the north-east, went from being the lowest in any region during the 1990s to being the second highest during the last decade. Between the mid-1990s and the global economic downturn of 2008, employment growth increased by 11.2% in the north-east and by 9.2% nationally. Between 2002 and 2008, private sector employment in the north-east rose by 9.2% while public sector employment grew by 4.1%, a point made by my hon. Friend the Member for Sedgefield (Phil Wilson). Between 1999 and 2007, the number of businesses in the north-east rose by 18.7%, which compares favourably with London’s business growth of 19.6% during the same period.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. The hon. Gentleman’s time is up.

--- Later in debate ---

[Mr Burley]

I am sure we will hear from my hon. Friend in due course, and I will let him make his own arguments, but in the very short time I have left I want to focus on the principle behind this debate, which is whether there are different costs of living in different parts of the country and, if so, whether that should be reflected in state pay. The simple answer to both those questions is yes.

Someone commented in response to the ConservativeHome article to which I have referred:

“Perhaps an experiment over a 2 year period to prove Regional Salaries are such a great idea? Begin with MPs and their staff. No doubt they will jump at the chance to lead by example?”

I propose to do exactly that. I have to hand the Independent Parliamentary Standards Authority bandings for accommodation expenditure—the amount that can be claimed by MPs to live in their constituency. Guess what? Yes, they vary by constituency. As MP for Cannock Chase I could claim £10,950 a year to pay my rent and bills, if I were to claim expenses for living locally, which I do not. The Member for Cambridge can claim £15,150—nearly 50% more than I can claim. The Members for North Somerset and North West Hampshire can claim £13,750, whereas the Member of North Swindon can claim just £12,350. So there we have it: there is regional variation in what MPs can claim to live, based on the cost of living in their area. If it is good enough for MPs, why should it not be reflected in the pay packets of other public sector workers?

Let us examine the arrangements for employing our staff. If I employ a senior caseworker in the London area, I have to pay him £23,000 to £31,000. If I employ him in my constituency, I have to pay him only £19,000 to £28,000. A senior parliamentary assistant can be paid up to £42,000 in London, whereas they can start on just £30,000 in my constituency. So the answer to the blogger is that MPs and their staff are already subject to regional variations in pay and allowances, and are living proof of the established principle of regional pay born out of different regional costs of living.

Let us put it the other way round: if the Opposition truly believe in national pay bargaining and public sector salaries being set nationally, will they intervene on me now to say that my staff in London should have their salaries reduced to match those of my staff in Cannock? Or should I be able to claim as much to live in a house in Cannock as to live a house in Cambridge? Of course not. Today’s debate is about whether public sector pay should be relative to private sector wages, and the simple truth is that it must.

The shadow Chief Secretary to the Treasury has said that regional pay will

“prove costly to the public purse and exacerbate regional inequalities”.

On the contrary, crowding out the private sector in the regions of our country is what will exacerbate regional inequalities, and setting a higher than locally appropriate wage bill means that public sector money is not allocated as effectively as it could be within local areas. I noted that she did not reply to the quote in my intervention, so I will repeat it to her now. Unison has said in its location-based pay differentiation paper of September 2011 that

“location-based pay systems offer increased flexibility and a systematic approach to addressing recruitment and retention issues at a local level.”

Government Members agree with Unison in that analysis, and I shall be interested to hear whether any Labour Members, many of whom will doubtless be taking donations from Unison to their constituency Labour parties, also do.

The Government are right to look at more local, market-facing pay and to end the anomaly of national pay bargaining—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. I call Russell Brown.