Regional Pay

Debate between David Mowat and Jacob Rees-Mogg

Wednesday 20th June 2012 Commons Chamber

[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.