Regional Pay (Public Sector)

Phil Wilson Excerpts

Tuesday 10th January 2012 Westminster Hall

[Phil Wilson (Sedgefield) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Chope, and I congratulate the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) on securing the debate. The issue of regional pay is important for people living in Wales, Scotland and Northern Ireland, and in regions such as the north-east of England.

I spoke about regional pay, or the localisation of pay, in a debate on 6 December 2011, and the issue has been on the agenda for Governments since at least the 1980s, when I was a civil servant in Durham. The Megaw report wanted to devolve public sector pay in the civil service on a regional basis, but that proposal did not get anywhere. Introducing local rates of pay is difficult. The previous Government looked at the issue with regard to the public sector, and a Treasury guidance note from 2003 stated:

“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, 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 is the basic, fundamental reason why devolution of levels of pay in the public sector has not been introduced.

This is a time of austerity. Public sector pay has been restricted and will not be increased for two years, and then it will increase by just 1% for two years. Let us look at markets in the north-east of England; if we had devolved local pay bargaining, people might say that pay should be frozen in that region for another year because of the difference between the public and private sectors. Do the Government believe that public sector workers in some parts of the country should have a pay rise, while those in other places should not receive one, because, according to Government analysis, the pay difference between the public and private sectors is too big?

We should not look at only one region. The difference in pay in the north-east and in the south-east of England is 10%, and we should try to decrease that. Why is it right for a nurse working at St Thomas’ hospital, across the way from here, to be on a different pay rate from a nurse who works at the university hospital of North Tees in my constituency, or in Bishop Auckland or Hartlepool? I cannot see how that can be right if both nurses are doing the same job. Many private sector companies, especially supermarkets and some banks such as Santander, have national pay agreements. There may be some flexibility within those agreements, but they have national pay systems. To say that some public sector workers should suffer austerity measures for longer than others because of where they live is divisive. How can we encourage a public sector worker to move from south-east England to the north-east to do exactly the same job if the rates of pay in the north-east are completely different from those in London?

[Tom Blenkinsop]

My hon. Friend makes an excellent case. There are institutionalised national bodies that survey and assess prices in supermarkets. How on earth would regionalised public sector pay work in an economy with five or six big supermarkets that are supposed to have national rates for pricing their goods?

[Phil Wilson]

My hon. Friend raises an important point. One reason why the previous Government did not introduce such measures is because the complexity of having different pay bodies, boards and regions would create unnecessary bureaucracy, which any Government should want to keep to a minimum.

In north-east England, average pay is £19,000 per year, but it is only that high because of public sector workers in the area. How low does the Minister want pay in north-east England to be? Public sector workers maintain the average salary at £19,000; without them it would be much lower. The differential in rates of pay is not a reason for cutting pay or suspending pay rises in the public sector. Instead, we should see how we can increase pay in the private sector.

[Tom Blenkinsop]

Again, my hon. Friend makes an excellent point, and it would be good to see the Minister thank and congratulate north-east England: although in the rest of the country the manufacturing economy is in the doldrums, the north-east is bucking that trend. Workers in the steel and chemical processing industries would undoubtedly be affected by any reduction in public sector pay.

[Phil Wilson]

My hon. Friend is absolutely right, and those workers will soon be joined by workers in the train building sector, in the factory in Newton Aycliffe. As I understand, the north-east exports more manufacturing goods than it imports.

The private sector has a major role to play, and we need an increase in private sector jobs. At the moment, however, 67,000 public sector jobs have been lost in north-east England, and unemployment has risen to 11.6%. Where are the private sector jobs? How can we say that the public sector is crowding out private sector jobs when unemployment is rising and there is no growth to make up for the loss of 67,000 public sector jobs? Figures from the third quarter of last year show that the number of private sector jobs in the UK increased by only 5,000. Many regions such as the north-east are losing out.

I am very worried about what will happen. There is a big pay differential between the south-east and the rest of the country. The differential between regions other than the south-east is minor; it is only 1% or 2%, depending on what goods we compare. We talk about social mobility, and about people getting on and wanting to move to different parts of the country; how will that be possible if pay rates are so different across the country?

Also, we will not create regions as we know them; we will create silos. If people work in the public sector in the north-east, that is where they will have to work, because if they want to move to south-east England or somewhere else, they probably will not be able to afford to buy a house there. There is great difficulty with that at the moment. Let us not forget that in London, where there is London weighting, there is a big problem with recruitment in the public sector as well.

The proposal is a knee-jerk reaction that has not been thought through. I know that the Chancellor of the Exchequer has said that this will not be regional pay as perhaps it was outlined in the past, and that it will be based on zones or localities. That may be so, and it may have been tried out in the Courts Service; let us say that it has been tried there. The fundamental point is that the previous Government did not want to implement it anywhere else, because they knew about the inherent contradictions involved in doing that.

North-east England is a great place to live. I have lived there all my life. I see it as a region of the country with a great identity. I do not want it to become a silo, such that if people work there in the public sector, they cannot work anywhere else. I do not want public sector workers in north-east England to have to face extended periods of austerity because they happen to be working in the wrong part of the country.

We need to look at the private sector. I want private sector jobs to come to the north-east of England, and I want those private sector jobs to have good pay rates. This week and over the weekend, every party has been going on about high pay among senior executives. Okay, let us consider that, but let us also consider low pay in the private sector and not just in the public sector, because private sector workers make up the majority of workers in the country. The answer to the problem is not regional pay or localised pay—it is a living wage for all our people.

--- Later in debate ---

[Miss Smith]

The best possibility of dealing with the overall economic impact will be when facts and data have been received. That is the point of the process that the Chancellor has laid out.

To move on to the content that we need to get through, hon. Members should be in no doubt about how important the public sector is and about the fact that the Government share that view and the desire for all parts of the economy to do well in the coming years. However, fiscal consolidation is a vital precondition for growth and part of the sustainable foundation that will let all sectors and all parts of industry do well and do what they need to. It is also part of achieving even growth across the country. It is right that public sector pay restraint should play a part in that fiscal consolidation. Public servants do a crucial job in delivering the high-quality services that we all look for, and it is right that we continue to offer the kind of rewards that attract the most skilled people to the public sector. However, it is incontrovertible that public sector wages on average continue to compare extremely generously to those of private sector workers. The Institute of Fiscal Studies, which has already featured in the debate, suggested that there is on average a 7.5% premium to working in the public sector over comparable jobs in the private sector. That makes a strong case for public sector pay bill restraint.

I want to discuss the rationale for the policy suggestion that has been made and the Chancellor’s effort to seek views on how it can be carried out. We must ensure that public sector pay is set at the right level for each labour market in the long term. I want to make it clear again that the proposals are not about generating savings, but about supporting economic growth by ensuring that wages are set at the level in individual localities. Indeed, a significant reason for the disparity between public and private sector pay is due, as I have mentioned, to the difference between pay that is set locally and pay that is set nationally. Typically, private sector pay is more subject to the rates paid by local competitors, the local cost of living and perhaps, in some cases, local turnover rates. However, public sector pay is usually set on a one-size-fits-all basis nationally. Accordingly, public sector workers can often be paid more than private sector workers in similar jobs in the same area. That has potentially damaging consequences for the economy. For example, private sector businesses, perhaps such as the one that my hon. Friend the Member for Montgomeryshire once ran, which are looking for staff to help them to set up or grow, need to compete with much higher public sector wages in the same area. That is the ultimate crowding-out argument within the debate.

I want to refer briefly to the system of zonal pay in the Courts Service, which has been mentioned. It demonstrates that it is possible for pay to be responsive to local labour markets within a national bargaining framework. Of course, those zones did not simply conform to regional boundaries, but took into account the local economy by, for example, putting Norwich, Exeter and Newcastle in the same zone. The debate has a misnomer at its heart. In the autumn statement, the Chancellor announced local pay, not regional pay, so we are not talking about something that might take effect at the level of Wales. We are talking about something that may, depending on what the experts say, happen at a lower level.

[Phil Wilson]

How local is local?

[Miss Smith]

I will just have to repeat myself on this point: depending on what the experts say, it will be at a more local level. That is what I, for one, look forward to from those experts, as, no doubt, do all those people who like facts.

The Government are not setting out detailed and prescriptive proposals. The hon. Member for Sedgefield (Phil Wilson) would no doubt like me to give a quote, but I shall not give him that pleasure this morning. Public sector work forces have a variety of pay structures, as has been mentioned. The Chancellor has therefore written to the independent pay review bodies to ask them to consider how to make public sector pay more responsive to local labour markets. They will report back with interim findings by July. That will include union evidence, to answer the question of the hon. Member for Bishop Auckland (Helen Goodman). I shall be absolutely clear about who will be included in the scope of the relevant body: it will be the NHS, excluding doctors and dentists—again, to respond to a point made by the hon. Lady—and it will include teachers, prison officers and the senior civil service. To respond to the hon. Member for Middlesbrough South and East Cleveland (Tom Blenkinsop), it will not include the police, who, as he knows, will be subject to the Winsor review.

The Minister for the Cabinet Office will co-ordinate and assist Secretaries of State in exploring how local, market-facing pay could be introduced in civil service Departments. As to the devolved Administrations, public sector pay in devolved areas is a matter for them, except for those areas where workers are covered by a national pay review body. That said, we are keen to see local market-facing pay introduced across the UK, and we urge all devolved Administrations to consider issuing separate remits for the relevant pay review bodies within devolved areas.

The hon. Member for Carmarthen East and Dinefwr asked me about an impact assessment on how the approach taken in the Courts Service turned out. Very speedily, I can offer him a couple of points about what happened across that experience. First, staff adoption was at 97% over a year later. Secondly and more broadly, analysis conducted after the reforms showed that the majority of locations had a healthy turnover and that the Ministry of Justice was able to recruit and retain staff throughout the country. He also asked me about the Office for Budget Responsibility costs of the public sector work force. If he would let me have that question in writing, in more detail, so that I can answer him as accurately as I can, I would be happy to do so; but I must finish a couple of other points in a very short time.

Public sector pay restraint and reforms to local pay policy are a key step to supporting local economic recovery and growth. Indeed, supporting regional private sector growth has been at the heart of the Government’s growth strategy. Hon. Members may want to consider, for example, the £30 billion of investment in infrastructure projects across the UK set out in the autumn statement, enterprise zones and the regional growth fund. We need to look at the aims and the areas and communities that are dependent so far on the public sector to support them in making the transition to private sector-led growth and prosperity.

Hon. Members have rightly talked about the need for fairness. As we all know, many families face difficult prospects. That is why the Government have taken practical steps to provide support, including—as the hon. Member for Newcastle upon Tyne Central (Chi Onwurah) will welcome—having gained more from a tax on bankers every year than the previous Government did in a single year. She will also welcome the protections for the lowest paid during the public sector pay freeze, the deferring of January’s scheduled fuel duty increase and the decisions that have lifted more than 1 million out of income tax altogether.

The Government have already taken considerable action to achieve strong, sustainable and balanced growth that is more evenly shared across the country. By moving towards local public sector pay, we can ensure that we have high-quality public services across the UK and do not crowd out private sector recovery.