Regional Pay

Ian Swales Excerpts

Wednesday 20th June 2012 Commons Chamber

[Bill Esterson (Sefton Central) (Lab)]

Most business people I know want to pay well because they know that if they look after their staff, their staff will do a good job and help their businesses to thrive. If we apply the same principle to the public sector, paying people well and treating them well are both critical factors in delivering good public services, but undercutting pay, making it easier to fire people, and cutting 40,000 public sector jobs in the north-west are all decisions that sap morale and make people more fearful, making it less likely that services will be delivered well. It is also less likely that people will spend money when they are fearful, and that will harm the private sector businesses whose customers work in the public sector.

Many of my constituents work in the public sector and would like to know why regional pay is being proposed. For staff and their families in the north-west of England, regional pay would most likely mean that they would be paid less than colleagues elsewhere. There would be several consequences of such a change, and I shall explore some of the concerns about a move to local and regional pay.

The likelihood is that we would see regional inequalities made worse. Where unemployment is already high and where the recession has hit communities hardest, the introduction of regional pay would make matters worse. Lower pay in the poorest areas is what regional pay means, and the consequences are that the best performing staff would be able to earn more elsewhere. That means that it would be harder to recruit and to retain staff where they are most needed, unless the Minister wants to tell us that regional pay means higher pay in poorer areas. I do not think that is what we heard earlier.

Lower pay means less money going into the economy, again where it is most needed. Less money from lower pay means less money being spent in local businesses already struggling under the pressure of being in deprived areas suffering from a Downing street-made recession.

[Ian Swales (Redcar) (LD)]

Labour-led Redcar and Cleveland was one of the councils that failed to implement the April 2011 pay rise for low-paid workers, meaning that their workers are now paid less than those in other localities. Did the hon. Gentleman’s council implement the pay rise? What does he think about councils that did not?

[Bill Esterson]

The hon. Gentleman represents a Government who have cut the funds to councils in the north of England more than ever in history. Those cuts were front-loaded and we still have not seen the end of them, so he is not in any position to tell people on the Opposition Benches about the way that councils operate.

My hon. Friend the Member for Sedgefield (Phil Wilson) made the point that public sector jobs help to create private sector jobs. Indeed, there is research suggesting that every pound spent on public sector pay generates up to £1.50 elsewhere in the economy. When we consider the implications of regional pay, I start to see it as yet another way for the Government to make matters worse, not better, in the areas that need the most help. It will encourage staff, when choosing where to work, to go to the better-off areas and spend their money in places that have fared rather better in the recession.

I am sure Ministers take an evidence-based approach to their policies, so where is the evidence that a more fragmented system would be more efficient? A national negotiating system means a structured set of negotiations and a co-ordinated approach across regions. What, I wonder, is the analysis by Treasury Ministers of the cost of multiple pay review bodies at a local level? I wonder whether Ministers had made those calculations before they made their commitment in the autumn statement. It seems to me that we would see a complex and bureaucratic process for setting local pay that would take time and resources away from delivering vital public services.

If regional pay is introduced, it will mean lower pay in the north-west. In answer to the hon. Member for Redcar (Ian Swales), 40,000 jobs have already gone in the north-west as a result of cuts in the public sector. The north-west has seen twice the national average in cuts in jobs in the public sector, and any measure that cuts pay in the north-west will depress the economy and hit the living standards not just of the staff who lose pay but of the businesses that rely on them and of the people who work in those businesses too.

Lower pay for poorer regions will make it harder to attract the best staff and to keep them. It will mean less money for the staff and their families in already poor areas, and it will take more money out of the hardest hit local economies. As we have seen, the increased bureaucracy will mean higher costs.

The Government point to a gap between public and private sector pay, but the reality is that cutting public sector pay will make it easier for private sector employers, too, to cut pay in order to maintain the differential. In fact, the removal of money from the economy would put pressure on some private employers to do just that because of the depressing effect it would have on the economy. The Government say they want to rebalance the economy. If pay is cut in the poorest parts of the country for lower-paid and part-time public sector workers, many of whom have already lost their tax credits, the economy will be rebalanced all right, but not in a good way. It will be rebalanced so that it is further away from a fair and equal distribution than ever.

The Government should have nothing to do with regional pay. They should continue to work with the staff who do a good job serving our communities up and down the country. They should support those staff to ensure that they can continue to deliver excellent services, not undermine them by sapping their morale with such crazy suggestions.

--- Later in debate ---

[Jacob Rees-Mogg (North East Somerset) (Con)]

Thank you, Mr Deputy Speaker. I am sorry that you reduced the time limit just before I got up to speak; I will not take it personally.

We have heard that there is no evidence of crowding out, so I thought that I would provide some from Brian Groom’s column in the Financial Times this week. To be fair, I will give both sides of the evidence that he cites, which comes from a man called Henry Overman of the London School of Economics, who found that

“in 2003-07, each extra 100 jobs in the local authority spurred the creation of 50 additional jobs in private sector services, but destroyed 40 jobs in manufacturing.”

Over the longer period of 1999-2007, however, he found that the 100 extra jobs in the local authority destroyed 80 jobs in manufacturing and did not produce any net increase overall through jobs and services. The focus on public service jobs is destroying private sector jobs. I urge Her Majesty’s Government to go much further and to abolish national pay bargaining altogether.

[Ian Swales]

I thank the hon. Gentleman for giving way and I am glad to be giving him an extra minute to speak. We are all familiar with the phenomenon of people connecting two disparate sets of statistics. Can he think of a mechanism by which adding 100 local authority jobs would destroy 80 jobs in manufacturing?

[Jacob Rees-Mogg]

The reason increased employment in the public sector destroys jobs in the private sector is that every public sector job has to be paid for by the private sector. The public sector creates no wealth. It spends wealth that is taxed from the private sector. If it does not come from tax immediately, it comes from delayed taxation through borrowing. That is the connection. Increasing employment in the public sector increases the burden on the private sector and destroys the ability of the private sector to compete globally.