Regional Pay

Jacob Rees-Mogg Excerpts

Wednesday 20th June 2012 Commons Chamber

[John Pugh]

That is certainly true, and a lot of UK national firms—building societies, banks and the like—do not have regional pay structures.

No one can dispute that reducing public sector pay in low-wage areas necessarily reduces the money spent, and therefore demand, in those areas. No one can dispute that putting relatively more money into the pockets of public sector workers in high-wage areas increases the money in circulation in those areas, and thus demand. Ultimately, economic division will be cemented in and, frankly, a good reason would be needed for doing that.

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

The hon. Gentleman said that no one would dispute his points, but I will. If more private sector employment is created, greater total pay is created in the region, thus increasing demand.

[John Pugh]

That is my next point, because the only good reason for taking forward the approach would be if it was thought that it would improve private sector job opportunities in the poor regions on the basis that public sector jobs appear to be relatively well paid and crowd out private sector employment. If that is happening, one piece of essential evidence—one killer fact—is needed to show that, but it is not differences in the rates of pay in the two sectors, because that reflects a range of things such as job profiles and qualifications. We need evidence to show that as the number of public sector jobs increased in such regions, the number of unfilled vacancies for comparable employment in the private sector grew. That would be the clinching fact, but there is no such evidence. In fact, vacancies in the public sector in the north take longer to fill, because 50% of them are out for eight or more weeks compared with 15% in the private sector. Jobs that pay a living wage and for which skills exist get snapped up. Vacancies do not abound in the private sector except where there are definite skills shortages, and that is because of unemployment. There is no parallel difficulty with failing to fill public sector vacancies in better-off areas.

In the absence of that one piece of clinching evidence, which simply is not there, one could take a barrow-boy view that one could none the less get away with paying people less in the public sector in less advantaged areas, and especially get away with lower pay for the less well-paid, thus banking a cash saving for the state. I understand that argument, but it would be a wholly inappropriate way for a state to behave. It would be inappropriate for the state to discriminate simply by doing what can it get away with. We do not pay women or ethnic minorities less because they might be willing to work for less. If it was easy to get people to take the king’s shilling in the north, would we offer them sixpence instead?

--- 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.

[Andrew Percy]

I usually agree with my hon. Friend, but will he explain why a schoolteacher in Hull or Grimsby, who faces some of the most challenging schoolchildren in the country and even more challenging parents, should be paid less than a schoolteacher doing exactly the same job elsewhere in the country? That is the problem that my constituents have with this proposal.

[Jacob Rees-Mogg]

My hon. Friend makes a mistake in assuming that the policy will automatically lead to lower pay. Pay will be set by market forces. If it was difficult to employ schoolteachers in his constituency, teachers in that area would have to be paid more than the market rate until it had the required number of teachers.

[Andrew Percy]

There is not a bigger pot of money.

[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.