Regional Pay (Public Sector)

Jonathan Edwards Excerpts

Tuesday 10th January 2012 Westminster Hall

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Diolch, Mr Chope. It is a pleasure to serve under your chairmanship this morning and to have the honour of beginning the first Westminster Hall debate of 2012. I thank right hon. and hon. Friends for making the effort to come here on the first morning of Parliament’s return.

The topic of regional pay will increasingly dominate relations between the UK Government and the public sector over the coming year, perhaps even more than the still unsolved dispute over public sector pensions. Back in November, I labelled the autumn statement a panicked response to worsening economic forecasts, rising unemployment and increasing deficit payments. The statement included many interventionist measures for which my party had been calling, particularly increased capital infrastructure investment. The signature policy of the statement was the capital investment programme, which seems remarkably similar to my party’s proposals at the last Welsh general election. I hope that the £25 billion of funds to be raised from pension funds over the coming years will be shared equitably across the nations and regions of the state.

The fine print of the autumn statement contained a deeply worrying request for pay review bodies to investigate how public sector pay can be made

“more responsive to local…markets”,

with the aim that they should report in July this year. After the flurry of announcements that we heard at the beginning of the autumn statement, it took a while for the significance of that announcement to sink in. What the Chancellor was announcing was a wholesale review of the introduction of regional pay in the public sector to be introduced as early as the 2013-14 pay round. I do not want to accuse the Chancellor of being deliberately antagonistic—

[Helen Goodman (Bishop Auckland) (Lab)]

Oh, why not?

[Jonathan Edwards]

Well, it is the first day back. However, the fact that that announcement was made on the eve of the biggest industrial strike in the UK since 1926 smacks of deliberate bad timing. If the Government think that the proposals for public sector pensions have got state employees and their representatives worked up, they have not seen anything yet. As the debate rages over such proposals, I fear that we are likely to witness increased industrial strife.

After making the announcement in the autumn statement, the Chancellor explained that the review would be a significant step towards the creation of a more balanced economy in the nations and regions of the state that does not squeeze out the private sector. The claim—the theory, at least—is that depressing public sector wages where they are currently higher than those in the private sector will lead to the brightest and best choosing a private sector career over public service and that such an approach will boost the private sector.

What are the Treasury’s intentions? Is it considering a system that extends the London weighting, or is it considering something altogether more far-reaching? In June 2008, the Minister for the Cabinet Office was quoted in the Financial Times as saying that it is the intention of the new UK Government to lower rates of pay in the civil service outside London. That is on top of redundancies and a two-year pay freeze, with the autumn statement freezing public sector pay at 1% for a further two years. May I remind Ministers that a pay freeze at 1% is essentially a further real-terms pay cut for the next two years? My fear is that the Treasury’s proposals are all about saving costs. I therefore cannot see it topping up payments for public sector workers in more affluent areas of the state or reallocating resources. My concern is that the Government’s intention is to reduce pay in the poorest parts of the state across the public sector and to introduce market conditions into public sector workers’ pay and remuneration.

The Institute for Fiscal Studies reported that the public sector pay bill for 2009 was around £182 billion, which represents around 30% of UK Government expenditure and around 13.1% of UK national income. However, based on the 2010 comprehensive spending review, we know that the public wage bill will be significantly reduced by the projected reduction of 400,000 public sector jobs by 2017. In winding up today, it would be helpful if the Minister informed us what the savings will be of the Office for Budget Responsibility’s new projections of more than 710,000 public sector job losses by 2017.

At the risk of offending my friends in the Labour party, based on the policy direction of the previous Government, the Treasury should have the full support of Her Majesty’s official Opposition. What strikes me about politics in this place is that, despite the sporadic changing of the guard at No. 10 Downing street, more things stay the same. The previous Prime Minister had obviously spent too much time in his former post at the Treasury, as he was an avid exponent of regional pay. Indeed, the previous Labour Government introduced regional pay for court workers and the Prison Service.

In the teeth of the trade union movement’s opposition over the coming months to these proposals, the Treasury will justifiably be able to say that the previous Labour Government introduced the principle of differential pay, using the Courts Service as a pathfinder for its wider introduction across the whole public sector. Indeed, the Chancellor made that point repeatedly to the Treasury Committee during the evidence session on the autumn statement last month. To the Public and Commercial Services Union’s credit, it warned exactly of that during the debate surrounding the proposals for the Courts Service in 2007. It said at the time:

“There was a need for a pay and regrading review as workers from the magistrates’ courts have recently been brought into the civil service. But the Department of Constitutional Affairs has gone for the cheapest possible option. If the government brings regional pay in here, it will try to implement it in the rest of the civil service, and then across the public sector.”

I would be grateful to the Minister if she informed hon. Members about the Government’s assessment of the impact on recruitment and quality of service in south-east England of introducing regional pay in the Courts Service. More importantly from my constituents’ perspective, what has been the impact on recruitment, performance and, crucially, morale in those areas where lower rates of pay are offered?

[Helen Goodman]

The hon. Gentleman is in general making an excellent case this morning, and I congratulate him on securing the debate. Does he agree that there is a real problem surrounding the quality of public services as a result of the fact that, for example, doctors might come out of university with five, six or seven years of debt and be paid less in regions such as the north-east or Wales than in London?

[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.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Gentleman on securing the debate. Surely, his point about the direct correlation between socio-economic difficulties in geographical areas—particularly those that are some distance from the south-east such as Wales, Northern Ireland, Scotland and the north of England—and the high dependency on public sector employment is key. Many of those areas have only managed to get through the recession at the moment because of their high dependency on the public sector. If we were to go down this route now, we would find that the problem would be multiplied even more.

[Jonathan Edwards]

The hon. Gentleman makes an excellent point. We should be considering not depressing the public sector in those areas where the economy is weakest, but improving the private sector.

Since the general election, we have heard a lot about the UK Government’s ambition to geographically rebalance the economy. They have the full support of my party, including the national insurance holiday proposals for small businesses, which I think shows the Treasury’s intent, despite the evidence showing a lack of success. The policy indicates that the Treasury, at long last, realises that countervailing measures are required to address the so-called north-south economic divide. We will, however, need a far more comprehensive approach than we have seen to date. My fear is that this policy on regional pay goes in a completely different economic direction.

One of our major criticisms of UK Governments of whatever colour in the past 30 years has been that the emphasis has been far too concentrated on one small geographical part of the state. Successive Governments have been guilty of allowing regional and individual wealth polarisation at an incredible rate. The average gross value added per person in inner London is 10 times that of workers in the Gwent valley. Inner London is the richest part of the European Union, whereas the communities that I represent—only a few hours down the M4; longer on the train—qualify for the highest form of European convergence aid. Such are the imbalances in the British state that it is now by far the most unequal of all EU member states. Considering the unification legacy in Germany, that is a damning indictment of all successive Governments.

Far from addressing that record of shame, these proposals will further depress those economies that are in desperate need of investment. It is no surprise to anyone that the fiscal consolidation pursued by the UK Government will hit the poorest parts of the state most. The statement by the Prime Minister that we are all in this together is rivalled in its degree of preposterousness only by the previous Prime Minister’s assertion, when Chancellor, that he would abolish boom and bust. My country has the lowest average gross weekly wages in the whole UK. On average, workers in Wales earn approximately £519.40, compared with £629.10 in the south-east of England and £826.40 in London. Take away the consistency of public sector pay—a point made by many hon. Members in interventions to date—and those discrepancies will be far worse.

[Grahame M. Morris (Easington) (Lab)]

I thank the hon. Gentleman for giving way and for securing the debate. Aside from the unfairness, will he tell hon. Members whether the ability of the fire service, for example, to be resilient in the event of major incidents such as terrorist threats—or flooding, which happens in my region—is likely to be undermined by such a national pay structure? Remember, firefighters will often cross borders to help brigades in other areas.

[Jonathan Edwards]

The hon. Gentleman makes a valid point about morale and about where public sector workers choose their profession as a vocation. They do so as a lifetime commitment and are more likely to move to areas where they will get better pay. This is a pressing issue about the effect that this proposal will have on the quality of our public services in those areas where we need to be pumping up the public sector because there are problems with the economy.

It would be indefensible, considering that public expenditure per head is far higher in London than other parts of the state, for the Treasury to introduce a policy that further exacerbates the wealth divide. The spending power of people in the poorest parts of the state is obviously far lower, and that has an impact on private sector growth in those areas. In the communities that I represent, more than 30% of the population work in the public sector. Their disposable income correlates directly to cash circulating in the local economy. The move towards regional pay, therefore, is deeply worrying, as it will institutionalise lower pay in poorer areas. It will entrench those deeply socially divisive economic variances that exist within the British state and fundamentally undermine a supposed key objective of the current UK Government.

[Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)]

I congratulate the hon. Gentleman on securing the debate, because this is a very important issue. What would have been the consequence if regional pay had already been instituted and police officers from my area in Cleveland were sent down to London, Birmingham or Manchester during last year’s summer riots? What would have been the consequences for the pensions of those police officers if their annual pay was reduced in certain regions of the country?

[Jonathan Edwards]

The hon. Gentleman makes a very informative intervention, which shows some of the problems. He is right to point to the recent riots in London, because police forces from his area and mine were sent down to London to deal with those problems. What would the morale in the police force be if there was differential pay in different parts of the British state? In fact, I cannot think of many other policy interventions that would undermine completely attempts to rebalance the economy geographically.

Returning to some of the arguments used to promote the idea, the notion that depressing public sector pay would lead to the brightest and the best leaving the public sector to generate wealth seems a slightly strange one. Public sector workers often make a lifetime commitment to joining a profession and to public service. Rather than seeking work in the local private sector, they are far more likely to seek similar employment in other areas where they will receive better pay. That will result in speeding up the brain drain that has caused so much damage to the communities that I represent.

There are a number of technical problems with the introduction of regional public sector pay. One obvious problem is how to calculate pay. Is the idea to link it with private sector pay? If so, the huge disparities in pay in the private sector between different parts of the UK would be replicated in the public sector. Generally, private sector wages in Wales are only half those in London. Are we seriously saying that a public sector worker in Southwark who does exactly the same job as an individual in Carmarthenshire should be paid twice the rate?

How many different regions will there be? How will boundaries be set, and how often will pay and boundaries be reviewed? In an unusual sign of activity, the First Minister of Wales announced within hours of the autumn statement that if the UK Treasury introduced the policy, the Welsh Government would seek to assume responsibility for public sector pay. I remember being interviewed by the BBC on the steps of St Stephen’s entrance on my response to the autumn statement. I was asked to respond to the First Minister’s comments, which I had not heard previously, that regional pay was

“a code for cutting pay in Wales”.

He continued:

“Ultimately we may have to look at taking over pay and conditions here in Wales. It’s not as easy as it sounds. There are real issues in terms of how that’s done. But if we’re forced into that situation, better that than have people’s pay cut by the UK Government in London.”

That sort of fighting talk, with an alternative course of action, is extremely unlike the current Welsh Government. We normally get a pile of hot air based on Labour-Tory tribalism, but with even the Welsh Government awakening from its slumber, perhaps Ministers here in London should be very wary of the strength of opposition that these proposals will generate.

[Susan Elan Jones (Clwyd South) (Lab)]

As usual, my Plaid friends always make the case better when they do not mention the word “independence”. Going back to the better part of the hon. Gentleman’s argument, we have a Secretary of State for Wales who happens to represent a Buckinghamshire constituency. Surely, if these proposals were considered logically, the rate of pay for that Secretary of State—if she is still Secretary of State at the end of the week—would be rather different if she represented a Welsh seat. That would be absolute nonsense, and it illustrates how nonsensical this policy is.

[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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[Owen Smith (Pontypridd) (Lab)]

It is a pleasure to speak under your chairmanship for the first time, Mr Chope; happy new year.

I, too, offer my congratulations to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) on securing this important debate, which, as he has rightly pointed out, will be one of the defining debates in respect of economic policy over the coming period. He made a series of telling and well argued points. It was slightly ironic to hear a nationalist Member of the House arguing in effect in favour of collective bargaining on a national, British basis right across the UK. Nevertheless, it was a very interesting point.

[Jonathan Edwards]

I make no apologies for what I said, because at the moment sovereignty over these issues resides in this place, and as someone who has been sent here to represent the ordinary working people of Carmarthenshire, I will continue to do so as long as that is the case.

[Owen Smith]

I am grateful to the hon. Gentleman for that intervention and pleased that he makes no apologies for what he said. I entirely agree with the arguments that he made in respect of solidarity and collaboration right across the UK for people who have similar interests across Britain, whichever area of the country they live in. I wholeheartedly share his views about that, which is why I am a Unionist, not a nationalist, on today of all days.

I congratulate the hon. Member for Arfon (Hywel Williams), my hon. Friends the Members for Newcastle upon Tyne Central (Chi Onwurah) and for Sedgefield (Phil Wilson), who made a powerful speech, and of course the hon. Member for Montgomeryshire (Glyn Davies), who I am delighted is taking up the challenge of telling the Secretary of State for Wales and the Chancellor of the Exchequer that we need a proper review to address this very complex issue—as he described it—as opposed to a couple of private letters to the heads of the national pay review bodies.

Public sector workers must wake up every morning wondering what this Government will do to them next. We have seen the continuing pay freeze; we have seen additional cuts in wages when inflation is taken into account for the next two years; we have seen the 3% additional effective cut in wages as a result of the changes in public sector pensions; and 710,000 public sector workers, up from the 400,000 previously admitted to, are waiting to see whether they will be in a job at the end of this spending period.

Against that backdrop, there was the bombshell in the Chancellor’s autumn statement that regional pay will be re-examined. The Chancellor said that the evidence suggests that regional pay should be considered, because there are disparities between pay bands in the public sector across the UK. As we know, the Chancellor is very keen on evidence-based policy, so I thought that I would assess the evidence in respect of regional pay to date, because we have some experience of it.

London weighting is well established. It is a means of trying to deal with the problems, particularly in respect of housing, for people working in London on lower public sector wages. The previous Government sought to expand that by looking at key worker status and further help for key workers in London. As several hon. Members have said today, and as the Chancellor said repeatedly when he appeared before the Treasury Select Committee, we also have the experience of the Courts Service. However, the Chancellor has been slightly less than fair with the facts in respect of the Courts Service. The fact is that the Courts Service changes that were introduced in 2008—the previous Labour Government introduced zonal pay and five zones across the UK—were a significant improvement on the disparities that existed hitherto. The Courts Service came together in 2005. There was a merger involving the magistrates courts, the county courts, the Crown court and the Supreme Court. Before that point, more than 50 rates of pay were being applied across the Courts Service, so we went from 50 to five. The reality is that despite protestations by some of the unions at the time, most members happily opted into that service; indeed, more than 95% did so.

Opposition Members, who believe in evidence-based policy, would like the Government properly to review the experience of workers in the Courts Service. They should consider retention, rates of pay and the way in which the system has facilitated movement or otherwise across the country, and bring that to the table as part of the evidence for the current proposal.

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[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%.

[Jonathan Edwards]

The hon. Gentleman makes a very important point. This morning, the Bevan Foundation responded to the debate by stating that the IFS figures do not compare like with like and that it is deeply misleading to use the figures in that way.

[Owen Smith]

I entirely agree. The evidence is shaky and a leap of faith is required—just as we were meant to believe that cutting the public sector would lead to a flourishing private sector. As we have heard, there is no reasonable basis for making that leap of faith. On job creation in the public versus private sector, we learned that in the last quarter, for every 13 jobs lost in the public sector, only one was created in the private sector. That is the reality of what is happening in the economy. We should not take, with any degree of faith, the Government’s reassurances that changing regional pay will make a key difference.

On both sides of the House, we have come to understand that fairness is an important theme in modern politics. In politics, we seem to be tussling daily over who can be the fairest, and the Government have to stand against the test of fairness on this issue. They need to answer the question whether it is fair to target public sector workers once more to pick up the bill for a crisis in our economy that they did not cause. Is it fair for the Government to implement a policy that will once more impact disproportionately on less affluent areas that have greater health problems due to the legacy of heavy industry and other issues? Is it fair to implement a policy that will suck demand out of their economies and further reduce the incomes of people living there?

The Government have a manifestly failing economic strategy to reduce the deficit that has led, on their admission, to an increased level of borrowing— £158 billion extra is being borrowed as a result of the their policy. That is why they are thrashing around looking for extra savings and why they are countenancing further unfair and destructive measures. They need to think hard about the policy, conduct a proper review and provide evidence to substantiate their dangerous claims.