Regional Pay

David Mowat Excerpts

Wednesday 20th June 2012 Commons Chamber

[Grahame M. Morris (Easington) (Lab)]

I was rather perplexed by the Minister’s response. My impression is that if it walks like a duck, talks like a duck and quacks like a duck, it is a duck. The Minister, however, says he is in favour of national pay negotiations, but wants to change how they are delivered regionally. As I say, I am confused about whether this is a U-turn, or is it two U-turns so that the Minister is facing in the same direction? It seems as if that is exactly what has happened.

Any decision to allow regional pay differences for low-paid workers in the public sector would only exacerbate the economic and social north/south divide. In fact, we recently had a Westminster Hall debate in which some of the relevant statistics and factors were put on the record. The announcement in the autumn statement that this was on the Government’s agenda came without any prior evidence base for such a move. When Ministers talk about how public sector pay might better reflect local markets, they mean only one thing—pay less to people in poorer areas such as ours.

Rebalancing our economy for the future and addressing the north/south divide should be a Government priority. However, these proposals for regional or local pay differentials—whatever the terminology—would simply entrench that divide. The north-east is facing a double-dip jobs crisis. Government policies of slash and burn in the public sector are hitting the north-east hardest, and the promised private sector-led recovery was always a Tory mirage. [Interruption.] Let me remind Conservative Members who are heckling from a sedentary position that the figures for the north-east show unemployment now standing at 145,000—up 8,000, providing a regional figure of 11.3%, which is an absolute disgrace. Regional pay in the public sector would only make things worse, turning the north-east, and indeed other peripheral regions, into low-pay ghettos.

[David Mowat (Warrington South) (Con)]

I thank the hon. Gentleman for giving way, as I have been trying to intervene for a while. He makes a point about the north/south divide, about which many hon. Members on both sides are concerned. Will he concede that in the last year of the previous Government, the gross value added difference between London and the north-east reached the highest level for a decade and a half? I do not think that was due to the present Government, so what was it due to?

[Grahame M. Morris]

I shall come to that point. Under the last Government, the GVA differential was considerably reduced over 10 years. I do not have much time, but if the hon. Gentleman reads the Hansard report of the Westminster Hall debate, he will find all the information there.

In trying to justify his proposals, the Minister mentioned the evidence base, as did the hon. Member for Stourbridge (Margot James). That worries me. Pay review bodies and police boards oversee a pay bill of about £95 billion, and any changes in the distribution of that money would have major consequences. The reverse multiplier and the taking of moneys from local economies are a huge issue, and the benefit changes have already had a terrible effect on the economy in the north-east.

I refer the Minister and the hon. Member for Stourbridge to the Government’s own evidence to the current review, which includes some key sets of figures that I found intriguing. According to that evidence, statistics from the Office for National Statistics on regional price levels relative to national price levels show that, if London is excluded, price levels throughout the United Kingdom vary by only 5.3%, from 97% in Yorkshire and the Humber to 102.3% in the south-east. In my region, the north-east, the price level is 98.2%. Those figures show the smallest variation in price increases throughout the United Kingdom. If the Government proceeded with their proposal to vary pay levels in the public sector, those in the poorest regions, such as the north-east, would be worse off while the wealthiest regions benefited to the tune of billions.

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[Guy Opperman]

I also believe that regional pay is divisive and manifestly unfair. Members who read The Daily Telegraph today—obviously, that includes many on the Opposition Benches—will know that it has criticised me personally for leading the opposition to these divisive plans. It must be very rare to be criticised by The Daily Telegraph and praised by the hon. Member for Sedgefield (Phil Wilson) all on the same day. I was interested when I read on to find that its argument is that pay distortions are

“economically destructive. They make it harder for businesses in the regions to recruit workers at competitive wage rates and as a consequence they stifle enterprise.”

That is not what individual businesses, whether small or large, in my constituency and elsewhere in the north-east are saying to me, however.

This Government, like previous Governments in 2003 and 2007, are right to look at all potential options for boosting growth, and I have no difficulty with them referring the matter for consideration by the pay review body, but ultimately this will not find business support or create the prospect of business growth in the regions that we represent, and we should not support it if it becomes Government policy.

The majority of public sector workers in my region are doing their bit already. They are hard working, and along with the vast majority of my constituents they accept that the Government are right to reduce the deficit, to cut public sector spending, to reform public sector pensions, to freeze pay in some areas and to eradicate some of the non-jobs and excesses that we saw before 2010. That is accepted.

[David Mowat]

I agree with the thrust of my hon. Friend’s remarks. He cited the phrase “economically destructive”, but does he agree that what is also economically destructive is average public spending per head in London being 15% higher than in the north-west, and that if we wish to tackle the issue under discussion that would be a place to start?

--- Later in debate ---

[Jacob Rees-Mogg]

Of course there is not a bigger pot of money, but if we allow competition to work, it will increase the local economy, which means that more money will be gathered in through council tax and the area will have the ability to pay more for the public sector that it needs.

The problem with what we are doing at the moment is that it impoverishes the poor. It keeps the poorest areas of the country poor for as long as possible. I know that Opposition Members and some of my hon. Friends are in favour of the current situation not because they want to keep the poorest areas poor, but for the most noble and romantic of motives. However, their noble approach to this issue is fundamentally wrong. They think that it is fair to ensure that everybody is paid the same, but if by doing that we destroy employment in certain areas and make more people dependent on the state, we are not acting in the broader interests of society.

[David Mowat]

My hon. Friend’s analysis would be 100% right if there were proof that higher public sector pay was crowding out private sector growth. I have not heard that argument being made.

[Jacob Rees-Mogg]

I gave a little bit of the evidence earlier, but it is the basic logic of economics that if there is a limited supply of labour and a high price is set for that labour in the public sector, it will be forced into the public sector rather than being available for the private sector.

If we set high wage rates for the public sector in the poorest areas of the country, the most able people will be attracted to the public sector, leaving them unavailable for the private sector, and it will set at an unaffordable level the rate that the private sector must pay to compete. The private sector will therefore move down to the south of England, where it is closer to so much other economic activity. If we want to create employment in areas of high unemployment, we have to make it attractive. It therefore has to be cheap. Otherwise, the magnetic pull of London and the region around it pulls employment down here. Those who really care about creating employment in impoverished areas should be in favour of getting rid of national pay bargaining.

National pay bargaining not only gets rid of competitiveness for the private sector, but pushes up all prices in the area. If there are highly paid public servants in poor areas of the country, the costs of housing and services are pushed up. The money that is spent by those people forces up prices and makes it increasingly difficult for the private sector to compete. That is the basic, unassailable logic of economics, and it will not be overcome by the mush of sentimentalism of those who think it is simply unfair to pay people different amounts. As my hon. Friend the Member for Cannock Chase (Mr Burley) said, we accept that principle in other areas, such as with the London weighting. We need to go much further so that every school and every hospital decides the pay rates that it will give its employees. We should make it as local as it possibly can be, and in that way we will allow the private sector to flourish and bloom, the economy to grow and our overall situation to improve enormously.