Regional Pay (Public Sector)

Hywel Williams Excerpts

Tuesday 10th January 2012 Westminster Hall

[Jonathan Edwards]

The hon. Lady makes an excellent point, and I thank her for that intervention. I will come on to talk about the brain-drain element and the polarisation of wealth across the British state.

I say to the Minister that, with the policy in operation across some parts of the public sector already, the Treasury should have the information about its impact at its disposal. That leads us to ask why the autumn statement pledged to hold an investigation into the issue. There is already a wealth of evidence from trade unions about the problems of the policy in the courts and prison services.

Without having sight of the Minister’s speech, I presume that her counter-argument might include saying that it is the Government’s intention to equalise the standard of living for public sector workers. Such an argument might go along the lines that a teacher working in Carlisle or Carmarthenshire has more disposable income than a colleague working in Reading, because of the difference in the cost of living and that that is morally unjustifiable. Superficially, that seems a seductive and attractive argument, but it is essentially a policy aimed towards a race to the bottom.

I hope that the Government do not embark on a divide-and-rule strategy and play public sector workers off against each other, as they have during the public sector pensions debate. Under the proposals, both public and private sector workers in the regions and locations concerned would be losers. The impact of such a policy would not be a geographical or sectoral rebalancing of the economy; it would be a sobering experience, with public sector workers already in fear of their jobs having their pockets picked for pension payments and suffering a prolonged period of wage freezes and real-term cuts.

[Hywel Williams (Arfon) (PC)]

Does my hon. Friend agree that the arguments about differential costs of living in some areas are sometimes bogus? He will know as well as I do that, for example, transport costs in rural areas are astronomical. People might have to run two cars, as they struggle to maintain a lifestyle that involves travelling to two jobs in different directions.

[Jonathan Edwards]

My hon. Friend makes an excellent argument. Indeed, following the autumn statement, he tabled an early-day motion on the topic, which I think has been supported by about 18 Members to date. I urge those Members who support the campaign on this issue to sign that early-day motion at the very least.

Public sector workers are facing real-term cuts and that is before we consider the impact on the private sector. In many places, the private sector is reliant on the trade generated by the public sector and the money circulated through public sector employees. In constituencies such as mine, where more than 30% of people work in the public sector, there is a direct correlation between their wages and the cash circulating in the local economy.

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[Jonathan Edwards]

That is a fantastic intervention, if I am honest. Obviously, if we were to think this policy through rationally, it would mean that Members of Parliament should receive differential pay, and I can imagine how that might go down with hon. Members if we had to vote on it.

[Hywel Williams]

To return to the practical problems that we have in Wales, we share a long land border with England that is rather different from Scotland. There is much less traffic. I am very glad to see that link with England and both sides should profit from it, but it means that public sector pay in the Courts Service in Mold, for example, is different from that in Chester, which is just a few miles down the road, and that is ludicrous.

[Jonathan Edwards]

That is one of the practical problems that will come from this policy.

As a Welsh nationalist, I of course welcome the statements of the Government of my country that they will look into devolving public sector pay and conditions. Let us hope that if the UK Government continue with this policy, they match their words with actions. My only word of warning is: how will the Welsh Government fund this policy, given that they are reliant on block grant funding, which has been depressed by the Treasury, and that they are paralysed by an inability to raise their own revenue? If we go down this road, we will have to reform the funding formula, which the Labour party was previously cautious about doing.

Every hon. Member will acknowledge that the cost of living—particularly housing—for public sector workers in some parts of the UK is a problem. The chasm between private sector and public sector wages in London, for example, needs to be addressed. That is why my party previously made the case for a maximum wage to tackle the ridiculous earnings and bonuses paid to people in the square mile that do so much to inflate prices for ordinary working people in both public and private sectors. We must consider introducing innovative ideas, such as rent caps, as in New York, to reduce the housing benefit bill and ensure that public sector workers are not priced out of housing.

Rather than take such bold measures, the UK Government prefer to hammer hard-working people in the poorest parts of the state in an attempt to remedy the problems caused by the obsession of successive Westminster Governments with the economic elite here in London. That policy response, based on dealing with the consequences of macro-economic policy, has led to such imbalances across the state, rather than tackling the causes of those imbalances. The argument is that, through regional pay, the differences between public and private sector pay will disappear, but that claim comes about through looking at problems through the wrong end of the microscope. That is the same perspective from which people argued that cutting public sector jobs would lead automatically to their replacement with private sector jobs—and that has since been proven quite wrong, especially in areas such as the one that I represent.

In Wales, as in other parts of the UK, the private sector is undoubtedly too small, and that is sometimes misrepresented by people saying that there is too large a public sector, but that is not the case. The private sector in Wales needs to be given encouragement to grow through tax breaks, Government support for specific industries and infrastructure improvements. My party has been championing such intervention in response to the economic turmoil of the financial crisis in the past four years. I need not remind hon. Members that the Welsh economy under Plaid Cymru was growing faster than in any other part of the UK when we left office.

Sharp cuts in the pay available to public sector workers would have a hugely negative impact upon their ability to spend in the private sector and would probably lead to a vicious downward spiral, with job losses in the private sector and then a further downward impact upon public sector pay to again realign. This is what Blanchflower calls a “death spiral”. The effect of regional pay may be to institutionalise lower pay and create employment ghettos. I am concerned that, despite such significant problems, the twin siren calls of saving money and dismantling the public sector may be too much for the Chancellor to ignore. I hope that I am wrong. Diolch yn fawr.

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[Glyn Davies]

No, I cannot say.

[Hywel Williams]

The hon. Gentleman says that the debate is on a long-standing, old question from 30 years ago. I thought that the Conservative position on it in Wales was made clear in a debate on 30 September 2008, when Mr William Graham—some hon. Members might not know that he is a senior Conservative Assembly Member—said:

“First Minister, you will know that the Welsh Conservatives firmly oppose the introduction of regional pay for civil servants.”

What has changed?

[Glyn Davies]

I am sure that Mr William Graham will be extremely honoured to be quoted in a debate in this House. I will tell him about that when I speak to him later today, as I have arranged to do—[Interruption.]—not on this issue, but on another one that will be of particular interest to Welsh Members across the board.

This issue has the potential to distort local markets. That was my view 30 years ago, and I still see that potential now. I should have thought that I would have found a measure of agreement with the hon. Member for Carmarthen East and Dinefwr in our discussions on Sunday morning, because there are significant questions about the difficulty of transferring from one area to another, for example, and whether inflexibilities will be introduced into the market. There are a host of other issues to consider, too.

We need an inquiry. I understand that one or two Opposition Members feel that the inquiry may not look across the board. I would be disappointed if that were so. We need an inquiry that will bring forward the information that all of us, including the Chancellor, need to make a balanced judgment. The appropriate time for that to happen that will be in six months.

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[Hywel Williams (Arfon) (PC)]

I am grateful for the opportunity to speak in this debate, which is important for my constituency and that of my hon. Friend the Member for Carmarthen East and Dinefwr (Jonathan Edwards), in that we have large numbers of public sector workers. I am glad that my hon. Friend was successful in securing the debate, and I draw hon. Members’ attention to my early-day motion.

Regional pay would institutionalise lower pay in countries and regions of the UK such as Wales compared with London and south-east England, and it would magnify the unfairness of the current economic situation. Whether it is called zonal pay, local pay or regional pay, in the present constitutional position and economic climate, it would go completely against the supposed policy of the UK Government to rebalance the UK economy, which is sorely needed. Regional pay would badly impact on Wales and other countries and regions with a weaker private sector, which is certainly the case in my constituency, as well as in other parts of Wales, the north-east and north-west of England, Scotland and Northern Ireland.

When the Government refer to rebalancing, they are referring to something different from what my party means by rebalancing. When the UK Government refer to rebalancing, they are referring to growth in the south-east, as we have seen from the implementation of various policies such as the huge high-speed rail proposal, which will be outlined today, the Olympics or a number of others, which I will not go into this morning.

Our version of rebalancing is to increase support to sectors of industry and locations that have not benefited in the past from Government benevolence and support, which means support for countries and regions that have lost out over previous decades. As my hon. Friend has said, the economic situation has led to the growth of the financial sector in the City of London to the cost of other industries; in Wales, we look in particular at the decline of manufacturing. We have a much more fragile and non-diversified economy because of the centralisation of the UK economy on London, which has produced the overheating of housing costs and pressures in and around London. Anyone who lives in the south-east knows what I mean, and we have seen an increase in inequality between London and the south-east of England compared with the rest of the UK. If the proposals go through—if they are discussed and decided upon—I fear that that inequality will be exacerbated.

The annual survey of hours and earnings published by the Office for National Statistics last month showed that Welsh workers are already among the lowest paid in the UK, while workers in many parts of London and the south-east earn double our average salary. I would be the first to complain about the large pockets of inner-city poverty that I come across when down here in London, and they are scattered throughout the inner cities of England, Wales, Scotland and Northern Ireland, but generally we have seen the north and west of the UK suffering, while the south-east has benefited. That leads me to what might be a soundbite but which has a certain truth: we have regional pay already, but in favour of the south-east. In part, that is because we have too weak a private sector, which needs support and investment to develop, as we in Plaid recommended in our economic renewal plan.

Support for the private sector in Wales may seem a peculiar position for a lefty nationalist to take, and I can see some eyebrows rising around the Chamber already. Unlike the Unionist parties, however, we see no long-term benefits in being continually tied to fiscal transfers from London. That is not the position in which we want to see our country. We want to be as successful as any other part of the UK or of Europe. It is a mark of the failure of the current Unionist settlement that parts of Wales have a gross value added that is low enough to take advantage of European convergence funding. Many parts of Wales have a GVA of less than 75% of the average, so we get large transfers from Brussels. Such transfers are welcome, but we do not want to be in that position at all. That situation is the result of the major economic decisions made in London, where the main economic levers are held. To thrive, the private sector in Wales needs support for it to grow. We need much better infrastructure and the Government to give the support and advantages that will allow companies the opportunity to develop. That has not happened over a long period, and it requires a broad mix of Government policy and a fair economic wind.

Chopping back the public sector in all the guises introduced by the Government—real-terms pay cuts, 710,000 job cuts according to the Office for Budget Responsibility, and the pickpocketing of pension contributions—will not improve the private sector in Wales one jot. Clearly, as anyone who has looked locally at the economy in Wales or elsewhere knows, there is a strong relationship between the public sector in our areas and the private sector. Cut the public sector and the private sector is hit hard.

The effect of any regional pay policy would be to depress wages in the public sector throughout Wales, which will have a strong knock-on effect on the private sector, because families will have less disposable income. Families with less income will purchase fewer goods and services locally, therefore providing less circulation of income for the local private sector.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

I thank the hon. Gentleman for giving way and the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) for securing the debate. As well as depressing salaries in the public sector and therefore in the private sector, and given that many of the people affected are already not well paid, will not regional pay cost the state more in working tax credit, housing benefit and the other benefits with which we subsidise low-paid workers?

[Hywel Williams]

The hon. Lady makes a fine point. As so often with the policies of this Government and at times, I fear, of her own Government previously, there is no apparent understanding that the system is such that if we cut off a large branch, the tree itself will be affected. I agree with her entirely.

[Helen Goodman]

The hon. Gentleman is absolutely right. In the north-east, the proposal has the potential to take between £500 million and £1 billion out of our regional economy every year, and yet the switch in capital to our regional economy under the Chancellor’s autumn statement was 0.1% or £4.1 million, which is completely unbalanced.

[Hywel Williams]

Indeed. The hon. Lady’s point is pertinent to the debate.

When cuts were made to wider public sector budgets, the effects were largely on the public sector, of course, but also on the para-private sector—companies that have contracts with the public sector—which is integral to local economies. Similarly, those whose livelihoods depend on services to those in employment will be at risk from the proposals. As well as the local economy, a whole host of small companies that service the public sector in our regions will be affected.

I have great sympathy with Labour Members—I am pleased to see some of them here today—but I appreciate that they will be fighting the proposals with one hand tied behind their backs. It does not please me to make the point about the introduction of regional pay by the previous Government, but the Labour Government promoted the idea. They floated it in 2003, and they introduced it in the Courts Service in England and Wales in 2008, when it was not entirely successful. The Public and Commercial Services Union has told me that regional and local pay in the Ministry of Justice has not been a success, and that with the introduction of local pay in the Courts Service in 2007, there were problems with regional pay zones in the Ministry of Justice. The policy created inequalities and tensions, and it was ultimately unsuccessful and had to be reformed. I hope that lessons have been learned, but I worry that the wrong ones might have been learned.

I conclude by saying that the effect of regional pay will be far-reaching and negative and that it will not improve the private sector. There is a strong likelihood that it will lead to institutionalisation of low pay in some places, and it will certainly make it much more difficult to attract new workers, as my hon. Friend the Member for Carmarthen East and Dinefwr has said. The Treasury must reconsider its stance, and I will certainly contribute to the debate as it develops, as will my hon. Friend and my right hon. Friend the Member for Dwyfor Meirionnydd (Mr Llwyd).

I apologise if my final point sounds light. I am pleased to see that Conservatives in Wales are represented here. The comments of the hon. Member for Montgomeryshire (Glyn Davies) were interesting. I appreciate that Scottish Tories may have problems in mustering manpower. It has been said that there are more pandas in Scotland than Tory MPs, and if the London Conservative and Liberal Democrat Government push the regional pay issue through, Tory MSPs in Edinburgh will be rarer than polar bears on the Clyde.

[Mr Christopher Chope (in the Chair)]

Order. Some hon. Members have indicated to me informally that they wish to participate in the debate. However, I will not call anyone if they do not rise and seek to catch my eye. This is the new year, a time to exercise the muscles and become fitter, so perhaps hon. Members who wish to speak will rise in their place.

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[Owen Smith]

For the third time, I have to tell the hon. Member for Montgomeryshire that there is no inquiry. A couple of letters have gone from the Chancellor to the heads of the pay review bodies asking them to come forward with evidence on how local pay might reflect local market conditions, which is not an open inquiry. I thought that the hon. Gentleman had taken up the challenge to appeal for an inquiry.

The world has changed since the policies were implemented in 2008 on the Courts Service, which took place in an economy that was growing right across the UK. The world has changed. When the facts change, we reconsider our views, and we are doing that right now. We are thinking about the meaning of the Government’s proposals on regional pay and what the evidence shows us. We will come to a considered view when we know what the Government are proposing, but let us look at the evidence.

Of course, it was a previous Tory Chancellor, in the 1990s, who first talked about introducing regional pay on a much wider scale. What happened in the NHS? Local bits of the NHS were given the right to conduct local bargaining, but they lacked the necessary experience and were unable properly to assess local market conditions. As a consequence, there was more than a year’s delay before regional pay bands were set. When regional pay bands were set, the differential across the country was 0.1%. The rationale for that was, of course, that managers understood that, given the problems and complexity that widespread differentials would throw up, a collective agreement right across the country was the best possible option. The Chancellor agreed, and a year later he took back the power, concerned that there might have been spiralling costs had the situation continued.

[Hywel Williams]

Will the hon. Gentleman give way?

[Owen Smith]

I will give way in a moment.

NHS trusts have the capacity to engage in a greater degree of differentiation, but by and large they do not do so, because they accept that it would be unfair and lead to unintended consequences. We saw some such unintended consequences when the police looked into regional pay. In the London Metropolitan area, there was an agreement a few years ago to offer a much higher rate of pay to Metropolitan police officers. The unintended consequence was that officers transferred in droves from the areas around central London, and outer metropolitan boroughs consequently had to set higher rates themselves. Such a policy leads to unintended consequences and involves significant risks, so the Government need to think carefully before they pursue it.

[Hywel Williams]

I do not want to dwell on the policies of the previous Government, because I think that those of the current one are infinitely more damaging, but before we leave 2008, will the hon. Gentleman confirm that the previous Government were not considering regional pay in any other part of the public sector apart from HM Courts Service? Was it just the Courts Service?

[Owen Smith]

The hon. Gentleman knows that I was not in the House in 2008, but as far as I am aware, we introduced the policy in the Courts Service and there was further consideration. The former Prime Minister, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), certainly talked about regional pay, but we did not introduce it in other areas. At the end of our period in government, there had been some experimentation in respect of the Courts Service, but we did not introduce the policy elsewhere.

Let us look at what happened at the Courts Service and consider where we go from here, because there are significant risks. At the time, the Government, and certainly the Treasury, understood that there were risks. My hon. Friend the Member for Sedgefield has mentioned the Treasury paper in 2004-05, which stated that

“extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”

That takes us to the motive: why have the Government now decided to bring this forward? If it was not a good idea a few years ago, why is it a good idea now? The reason is, of course, found in the two issues that they have with the public and private sectors. First, they believe in a totally outmoded, almost Manichean split—the public sector is bad, bloated and inefficient and the private sector is good, lean, hungry and eager to work. That is their understanding.

Secondly, the Government have a thoroughly outmoded notion that cutting the public sector and effectively forcing people to transfer to the private sector—through actively cutting jobs, as we heard was the strategy in the Budget, or through reducing regional pay, as we now hear might be the strategy—will somehow inflate the private sector. There is absolutely no evidence to support that. It is a totally misguided prescription, and one I fear that the Government will repeat.

The Treasury has said that the reason for looking at getting rid of national pay bargaining is to produce

“an economic reform to boost regions of the economy that are over-dependent on the public sector. All the evidence is that flexible public sector pay to reflect local labour market conditions will allow the private sector to flourish.”

Show us the money and show us the evidence, because we cannot see it at the moment. We can see a pamphlet with a lot of inflammatory language about the Manichean split between the fat public sector and the lean and hungry private sector from a think-tank which is pretty close to the Prime Minister and which some would say is a free-market, right-wing organisation, but apart from that I do not see a lot of evidence to support the position.

I suspect that the Minister will come out with some inflammatory comparisons, but I hope that she will not. We have heard so often about paramedics earning 16% more in the public sector than in the private sector, and I hope that we will not hear such unnecessary and unfair comparisons now. As the Institute for Fiscal Studies itself has said, such comparisons do not take into account the fact that there are invariably older and more experienced workers with better qualifications in the public sector. When such factors are taken into account, the differential between the public sector and their private sector counterparts is perhaps only 2%.

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[The Economic Secretary to the Treasury (Miss Chloe Smith)]

Happy new year, Mr Chope. I am sure that it is an honour for us all to take part in the first debate of 2012, so let us enjoy ourselves for that reason. I thank the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) for securing what has been a thorough and interesting debate. It might not be a new debate, as my hon. Friend the Member for Montgomeryshire (Glyn Davies) said, but it is extremely important none the less.

The policy is not about saving money—I shall pause for the hon. Member for Pontypridd (Owen Smith) to draw breath—but about supporting economic growth, and I will go through the reasons why the Government believe that the policy could do that. A simple fact of life that needs to enter the debate is that public and private sector organisations compete for employees in different markets across the UK. There is no way around that fact. Equally, there is no way around the fact that private sector pay is, on the whole, set locally and that public sector pay is usually set nationally. I will set out two effects that those differences can have before going on to the meat of the debate.

The differences can do three things. First, they can hurt private sector businesses that have to compete in certain places with higher public sector wages. Secondly, they can also lead to unfair variations in the quality of public services—something on which I am sure that we would all have more to say, had we another hour and half in which to debate it. Thirdly—this is crucial—if a higher than locally desirable wage bill is set, public sector money is not always allocated as effectively as it could be within local areas. That has a knock-on effect on what the public sector can do with its remaining budget, which has a further knock-on effect on the number of jobs that the public sector can support.

[Hywel Williams]

To the contrary, given the problems of mobility of public service workers that would inevitably arise with regional pay, what consideration are the Government giving to the direction of labour in the public sector?

[Miss Smith]

If I have understood that correctly, it is about what definition the Government are giving to labour in the market. I beg the hon. Gentleman’s pardon—

[Hywel Williams]

The direction of labour. It is a good old-fashioned socialist policy.

[Miss Smith]

Absolutely—which I am clearly not ready for at 10 to 11 on a Tuesday morning.

The point that I was going to make, which is the most important one that I want to leave behind in this debate, is that the Government have set out no detailed proposals at this stage. As I think all hon. Members know, the proposal that has been made so far, through the autumn statement and subsequently, is only to ask the experts how public sector pay might better reflect local markets. I, for one, do not have a problem with that being done by letter. I hear what hon. Members have said about that. However, I am also particularly delighted that the hon. Member for Pontypridd changes his mind when facts change. I hope that in this case also he will wait for the evidence.