Regional Pay

Elizabeth Truss Excerpts

Wednesday 20th June 2012 Commons Chamber

[Rachel Reeves]

The problem is that the Government are being a bit two-faced, with one person saying one thing and another saying something else.

The reality is that we are in a recession made in Downing street and it is hitting some parts of the country particularly hard. I quote from a recent report by the Institute for Public Policy Research on the state of the northern economy:

“The double-dip recession has hit the North hard, with unemployment rising and business confidence falling. This lack of confidence among employers has maintained the hiring freeze across the North, implying that upward pressure on unemployment is likely to continue for the rest of the year.”

The difficulties faced by workers and businesses in many parts of the country as a result of the recession that this Government have landed us in are being made all the more desperate by the Government’s short-sighted decision to dispense with policies and processes put in place by the Labour Government to support more balanced development across the UK. This is a Government who got rid of regional Ministers, shot down regional development agencies, and cut back on vital regional investments such as the loan for Sheffield Forgemasters. The only regional policy that they have left is regional pay, which will take more money out of some of the most deprived areas of the country.

[Elizabeth Truss (South West Norfolk) (Con)]

In the 1990s, Sweden moved from national pay scales to individual contracts. That was supported by the unions and resulted in a rise in some salaries for jobs where there was a shortage of workers—for example, kindergarten teachers—and it has been very successful. Is it not the case that other countries are moving to more competitive labour markets while we are moving backwards, as we did under the previous Government?

[Rachel Reeves]

I am sure that the 11,500 public sector workers in the hon. Lady’s constituency will know that she is sticking up for them.

--- Later in debate ---

[Elizabeth Truss (South West Norfolk) (Con)]

Our country’s human capital is becoming more vital to our growth and there is an increasing return to skills in jobs across the world. To have a flexible modern economy, it is vital we have a functional labour market in which there are clear signals about what skills we need and where we need them. The idea, in this day and age, that we can have a one-size-fits-all deal for all locations and all performances across the country is wrong.

We face growing international competition—interestingly, Opposition Members made no mention of what is going on around the world and the competitive pressures we face. Countries such as China, Brazil and India are developing highly skilled people, and the UK’s labour force is already 11% less productive than the G7 average. Western competitors such as Canada, Germany and Sweden are reforming their labour markets. In the 1990s, Sweden abolished national pay scales and gave everybody individual contracts. Salaries in professions that were short of supply rose, so kindergarten teachers’ and tax inspectors’ salaries went up. That did not happen overnight, but the change allowed for the adjustment. Places could get the workers they needed with the skills they needed. The contracts were supported by the unions, even though they had trepidations at first. Once individual contracts were in place, the unions acknowledged that they were a good thing.

There have been extensive labour market reforms in Germany, including the introduction of mini and midi-jobs and exempting small companies from labour regulations. Huge labour market reforms and a highly devolved system of wage bargaining were introduced in Canada in the mid-1990s.

Countries such as Sweden and Canada are not pay-the-bottom-price countries, but countries with highly skilled and flexible labour forces. That is what this country should aim for, rather than a one-size-fits-all model. Under the previous Government, there was greater centralisation, with the exception of academies. There was a national agreement on teachers’ pay and conditions in 2003, which made it much more difficult for schools to organise their work forces. The GP contracts signed in 2004 were disastrous. Such national pay bargaining has made our country’s labour force inefficient and damaged regional economies.

We have skill shortages in key professions. Schools in my constituency struggle to recruit maths teachers. They are subject to national pay scales, so they cannot pay the extra money they need to pay to get the teacher into the school. Therefore, students in my constituency lose out on vital education that they would have were the school allowed to change the wage scales.

My hon. Friend the Member for Cannock Chase (Mr Burley) made a good point about the private sector being crowded out. Paying people over the odds of their market wages in places where we could get better value for money is not the best use of public money. The money is not free; it comes from hard-working people who pay their taxes.

[Mr Burley]

Does my hon. Friend agree that paying people above what is necessary to retain and recruit them is economically inefficient, and that more public sector workers could be employed in her constituency with the same pot of money if people could be paid less?

[Elizabeth Truss]

I completely agree with my hon. Friend. Opposition Members do not acknowledge that this country’s unemployment rates are higher compared with countries that have taken action and reformed their labour markets, such as Germany. Those countries have reduced the differentials between different areas.

[Jim Sheridan]

Will the hon. Lady give way?

[Elizabeth Truss]

I want to continue because we have only a limited amount of time in the debate.

The Government need to be bold in their approach. We need to move from national wage bargaining to individual contracts, as Sweden did. That change was well received by the unions and public sector workers. We need to move to flexi-jobs, similar to German mini and midi-jobs, which have reduced unemployment by half since 2005. We need seriously to look at exempting small businesses with under 10 workers from some dismissal regulations, as Germany did—the change reduced unemployment. The time to take bold action is now.