Time for the Lib Dems to blow the final whistle on national wage settlements

It’s over 50 years since the campaign by Jimmy Hill, then chairman of the Professional Footballers’ Association, successfully scrapped the maximum wage which operated throughout the football league until 1961. Some probably lament the commercialisation of the game which it set in motion. But the idea that individuals should have a ceiling placed on their wage-earning potential by the authorities seems quaintly absurd today.

Except in the public sector. If you’re paid by the government — if, for example, you work in schools, colleges and universities, or the civil service and local government — then your wages are defined by national pay rates determined by Whitehall and trade union negotiations. It doesn’t matter which part of the country you work, you operate within that centrally-set national pay framework. It is as quaint and as absurd as the wage rules of football were half a century ago.

The latest leaks ahead of the Budget suggest that the Coalition will put a stop to this cabale. I hope the rumours turn out to be accurate. Back in 2006, Gordon Brown argued in favour of “more local and regional pay flexibility” in his Mansion House speech as Chancellor; but like so many politicians before and since he quailed at the thought of actually introducing a policy which will create ‘winners’ — including and especially those working in, and depending on, public services in the most deprived parts of the country — but which will also result in ‘losers’ who may shout more loudly.

There is a seductive line of opposition to scrapping centralised pay rates, articulated here by Jonathan Calder — that a national wage settlement is the most effective way of deterring “the brightest and best [ending] up in London, earning more than their counterparts elsewhere.” It’s not an argument I buy. Here’s why…

Skewing the wage market: the impact on deprived communities

This is not a simple question of London/south-east Vs the Rest of the UK. There are huge variations within regions, too, which skew the labour market — we only have to think of Nick Clegg’s famous example of the “absolute disgrace that a child born today in one the poorest neighbourhood in Sheffield, where I am an MP, can expect to live 14 years less than one born in the wealthiest neighbourhood.” Guess which Sheffield neighbourhood is going to find it easiest to attract the best teachers or social workers — the leafy suburb or the gritty inner-city — if both pay the same salary?

Unsurprisingly, recruitment and retention rates in the most deprived parts of the country are well below those of the more affluent. Under normal market conditions, this would be reflected in the pay and conditions: tougher work would be better rewarded. In this country, we hope that our public sector ethos will somehow make up the difference, that there will be enough local heroes willing to undertake more demanding jobs for no extra remuneration. The evidence shows that such hope is as forlorn in reality as it sounds in theory.

Alison Wolf, Professor of Public Sector Management at King’s College London, produced an excellent and thorough analysis of the malign impact of national pay rates on the country, and in particular on our most disadvantaged communities, in November 2011 for Centre Forum. Here’s a table from her report which illustrates the point I make above, that inter-regional differences exert a profound influence on public services:

As Professor Wolf notes:

… even in regions where public sector pay is relatively very high, deprived localities find it very hard to attract good professionals. Money is not the only thing that matters to public sector employees (or indeed almost anyone); and there are genuine differences in people’s motivations which translate into career choices. But money certainly does matter; and if we want to improve the quality of services for deprived communities, then one obvious and powerful thing to do is to pay people more to work in them.

Attracting private investment to deprived areas

But the negative impact of national pay rates on public services are not the only important aspect of this debate — there is also their constriction of the capacity for deprived communities to attract private sector investment. Low-wage regions, such as Sheffield, should have one obvious competitive advantage over London: lower living costs, in particular housing, should make it easier to attract and retain skilled employees.

National pay rates in the public sector, though, skew the market, siphoning off the supply of qualified staff. Professor Wolf again:

Nationally set public sector salaries, just as much as the national (and also uniform) minimum wage, put a floor under the wages a private employer can offer – and correspondingly reduce the degree to which setting up business in a deprived area rather than a prosperous one is financially attractive. Of course this does not mean that there is no successful private enterprise in relatively less successful areas; there are still plenty of companies who can and do pay good wages to highly productive workers and turn a handsome profit. But at the margin, it makes it harder and less attractive to create new private sector businesses and jobs – and the margin is where the recently redundant, the long term unemployed, the less skilled, and the school leavers are to be found.

Conclusion

It seems clear to me where we should be heading: for each individual employee to be able to negotiate their own individual contract, as they do for example in Sweden. In reality, many constraints and parameters will remain, not least the total budget available that can be afforded for public services. There will also, of course, continue to be a valuable role for trade unions in collective bargaining, but much more of it will happen at regional rather than national level.

Ending national pay rates is not a silver bullet. National and regional income inequalities are deeply ingrained, as are the vested interests of government and the unions in sorting out wage settlements with as little bother as possible, rather in the way C.19th conferences of Europe once re-drew the maps of countries. No single measure is going to put that to rights overnight. But it would, I believe, be a step in the right direction not only in improving individual employee rights, but also in helping the most deprived areas in our communities to start to compete with their better-off neighbours.

* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.

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97 Comments

  • Joseph Donnelly 18th Mar '12 - 2:41pm

    The points this article makes link in with schemes like the pupil premium. Because of it schools in the poorest areas cold afford to pay a bit more to get good teachers to come and teach there when they regularly just won’t at the moment.

    I hope Lib Dems don’t make a fuss over this, theres no particular liberal reasoning why there shouldn’t be a market working in pay in the public sector, everyone who works in the private sector has to deal with it.

  • mike cobley 18th Mar '12 - 2:56pm

    So there will be winners, and there will be ‘losers’ – why the quotations, Stephen? Do you believe that anyone who loses out is really, well, losing out, or is it just that they can be safely disregarded in the quest of levelling wage expectations and thus attracting those finicky investors?

    From my captious tone, you can guess that I’m scarcely on board with this. In fact, through gritted teeth I am impelled to wonder whether the Coalition should just openly follow the lead given by Republican administrations in Michigan and other states and outlaw union bargaining in the public sector. After all, that IS what the Tories long for, in their grubby little heart of hearts.

  • mike cobley 18th Mar '12 - 2:58pm

    god, typos, why no edit function????

    Line 2, should have read – …who loses out is not really.well, losting out…

  • mike cobley 18th Mar '12 - 2:59pm

    losting …. dear god…

  • Chris Riley 18th Mar '12 - 3:12pm

    (Disclaimer: I’m a labour market specialist. I am also pseudonymous)

    Wolf’s report lacks an evidence basis in many key areas, and fails to convince.

    CROWDING OUT THEORY

    Inconveniently for the core thesis of the argument, the Government is essentially in the process of testing ‘crowding out’ theory in the regions by significant layoffs of skilled public sector staff. There is no evidence that this is stimulating any kind of private sector jobs recovery at this stage and currently, crowing out theory appears to be in the process of being falsified.

    A lot of this is because the skills mix is not the same as those required by the private sector. The public sector workforce is more highly qualified, with far more graduates – and is dominated by certain specialist professional occupations in health, education and social care. yes, there are a lot of other employees outside these areas but they’re the ones who have suffered most in cuts so far. By reducing relative pay rates of public sector professionals, you do little to boost the private sector. There are few potential businesses in Teesside prevented from expansion because they can’t recruit social workers. In short, Professor Wolf’s highlighted quote:

    “Nationally set public sector salaries, just as much as the national (and also uniform) minimum wage, put a floor under the wages a private employer can offer – and correspondingly reduce the degree to which setting up business in a deprived area rather than a prosperous one is financially attractive.”

    is faulty because it fails to identify just what skills this makes private employers less able to access. There may be some overlap in some areas (HR and accounting, possibly), but unless you can demonstrate that there are specific skills currently effectively witheld from the private sector because of public sector hoarding in the regions, then you lack a case to make.

    There are manifold issues with this policy; lack of Plan B if (when) it turns out you were wrong; the effect on local service SMEs of suddenly decreased local purchasing power; the inability of this policy idea to adequately account for national cost invariances (are you going to cut local fuel duty? Local tax rates?); the message that it sends that people working in Poorchester (and bear in mind one of the areas most affected will be Lib Dem heartlands in the SW. Not just Labour voters) are literally worth less than those working in Richville; the knotty problem of what happens if constituency or local authority boundaries change; the very simple and basic point that a worker in, eg, Hull, might live in Hull and work in Hull, but they’re also actually allowed to travel elsewhere, perhaps for business or even, heaven forbid, for pleasure, and reducing their income based on local costs simply makes them less able to, for example, travel to London.

    At a very basic level, you don’t even tackle the questions of where the necessary data is going to come from (and the simple fact you haven’t makes me suspect you don’t know how tricky this will be to do properly), how it will be examined (will it take into account local distortion effects by one large employer in a specific sector, or will it be a blunt instrument average? What would happen to a place like Sandwich when the main employer suddenly shuts and precipitously drops the local average wage – does everyone else then have to have a pay cut because a private business went under?), how often it will be examined, and what would the appetite really be for local pay *rises* if they turned out to be necessary. Wages can be driven up as well.

    The failure to confront many of these points outlines the lack of rigour in the argument you’re making. But here’s a political point to chew on, Stephen.

    As I mentioned, the public sector is much more graduate than the private sector, and in much of the UK is the main employer of university graduates. What you’re enthusiastically championing here is effectively an ongoing pay cut for a significant proportion of future graduates. This doesn’t look like it works very well with your tuition fees policy, at all, because it will reduce future revenue (and the funding of the policy is already very precarious), and will provide a disincentive for graduates forced to repay according to earnings to accept lower salaries, thus exacerbating an already serious issue of talent flight from areas that really need it. I would suggest that the Liberal Democrats are probably not well-advised to champion a policy that disproportionately disadvantages future graduates.

  • Yet another step in the coalition “race to the bottom’ …

  • Here is a critique of some of the comparisons in this area made by Ben Goldacre (albeit from 2010 – I think it is possibly still useful though)

    http://www.guardian.co.uk/science/2010/jan/09/bad-science-ben-goldacre

    It does raise a question I have that I could not find in the IFS documents – what are the job comparisons. Who are teachers, firefighters, nurses, policemen compared to in the private sector?

    I am also very skeptical that any policy such as this involving the Tories will be anything quite as subtle as described above. I would support higher wages being offered to those working in the hardest environments but is this going to be the case? Is the school in ‘leafy Sheffield’ with middle-class parents going to accept teachers being paid a lower salary than those in a tougher inner-city school.

    What will probably be seen is that all public servants in certain regions will be paid worst and it will not matter where they work. The middle-class areas will still have their good teachers though as they will be allowed to set up free schools with the flexibility of paying more (semi-private schools) and certain hospitals in certain areas paying higher wages to nurses supplemented by private income.

    Of course none of this will apply to the poorer areas which will see lower wages for their staff.

    The removal on national pay bargaining and further weakening of the unions coupled with the allowing of private sector involvement in provision is a clear path to a two-tier system. Perhaps not in the next 5 years but the framework is in place.

    The LD complain that the Labour Party put in place some of the mechanisms that the Tories now are exploiting – this is a similar case but it is being done with the support of the LD.

  • This article from Alastair Hatchett, the head of pay & HR services at Incomes Data Services is well worth reading:
    http://opinion.publicfinance.co.uk/2012/01/regional-pay-the-top-ten-myths/

    A few quotes:

    “Myth number one was asserted in the Chancellor’s 2011 Autumn Statement which said: ‘While private sector pay is set in accordance with local labour markets, public sector pay is usually set on a national basis.’ Here is a classic example of not comparing like with like. The fact is that most large, multi-site private sector companies have national pay structures. These organisations, among them retailers, banks or telecom companies are not dissimilar to large, multi-site public sector organisations that have national pay structures. …

    Myth number six is that public sector pay is set by rigid national agreements, with no scope for flexible interpretation. Yet in many aspects of pay modernisation in the public sector in recent years local pay flexibility around national pay spines has been a key feature. Most large public sector bodies have inner London, outer London and South East allowances and in some cases they have London regional pay bands. …

    Myth number eight is that there is something intrinsically better about not having any national structures in place. But leading HR professionals in large companies with branches throughout the country would say national pay structures and national pay determination provide simplicity, avoid the costs of duplication, allow better pay bill control, create consistency and avoid poaching and leapfrogging.”

    And also this post from The Work Foundation:
    http://www.theworkfoundation.com/blog/591/Regional-Pay-Can-it-work-this-time

  • I forgot to quote the conclusion from the Work Foundation article:

    “The inescapable conclusion is that, between local employers, Unions, employer bodies and Pay Review Bodies, there is a cosy consensus that National arrangements are the ‘least worse’ option and that the arguments for change – and the appetite for embracing change – remain very weak. While the high-level policy objective of Mr Osborne, as it was for Gordon Brown, is to reduce the public sector paybill, experience suggests that it is a lot easier to aspire to this than to deliver.”

  • Shall we look at the lessons learned from football?

    There are a small minority of clubs that suck up all the wealth in the leagues and effectively dominate competition. Smaller clubs simply cannot compete due to being undercut for star layers by the big boys. Furthermore, because of the immense costs now incurred by football clubs even the biggest are at risk of bankruptcy should they fail to qualify for the champions league, or stay in the premier division for the smaller clubs.

    Football wages should be a warning of what this will mean if your analogy holds.

    BTW, if everybody is to negotiate their own contract then the biggest losers will be women, who, and this is for a variety of reasons, get paid much less than male equivalents when they negotiate their own salary. Is this an outcome you will tolerate?

  • PS, I’m an academic working in an economically deprived area. My current employer provided me with financial perks to move here.

    What do you think would happen if, under your proposals, my employer was to offer staff less than they get elsewhere given the relative freedom of movement academics have?

  • Tony Greaves 18th Mar '12 - 3:59pm

    This is a shocking posting and a shocking proposal.

    Almost everything this government does is to the disadvantage of areas like the North of England and East Lancashire in particular. Academics – you can argue the theories of all this till you are blue in the face (blue probably the right colour). For those of us on the ground in disadvantaged areas it will be another disaster. But do the people who run this government care? Certainly the likes of Cameron and Osborne do not.

    Tony Greaves

  • Tony Greaves

    I agree with you, as I do on many of your views. This is why I still have hope that there is a liberal left still around in the LD!

    I also have to say, however, that it is the party who you represent that also seems to be embracing this policy. Alison Wolf has the ear of many of your leadership and as we can see Stephen Tall (and I assume Mark Pack) is very keen.

    My view is that there are ulterior motives that would undermine any benefits from loosening pay bargaining to this extent. As already mentioned above there is scope for some variation and that some of the assumptions are not particularly strong

    Good luck with your continued attempts to influence things – if you succeed I am sure I and many others will look forward to voting LD again in the future – unfortunately I am not optimistic

  • David Evans 18th Mar '12 - 4:08pm

    Tony is absolutely right in reality and Stephen is totally right in theory. Guess which world I live in?

  • Where does this appear in the Coalition Agreement?

  • ARTHUR COLLINGE 18th Mar '12 - 4:22pm

    As commented on the members forum this proposal if enacted could be a defining moment for all those Liberals who learnt the lessons from the Great Depression-that cutting wages in the regions is the road to unemployment and
    recession.Have we learned nothing from fellow Liberal Meynard Keynes? Whilst restructuring of the regional economies is essential and we do need a growth strategy, to cut spending power in the regions where the public sector is crucial is economic nonsense and totally counter-productive.

  • jenny barnes 18th Mar '12 - 4:24pm

    ” for each individual employee to be able to negotiate their own individual contract, ”
    There isn’t any disparity in power between employer and employee of course. No. With the levels of unemployment we’re experiencing, the risk to the employee of driving too hard a bargain is that they lose their job, house, etc. The risk to the employer is that they have to wait a day or two for another person to recruit. There’s a reason why capitalism likes a lot of unemployment, and it isn’t so that the employee has any negotiating power.
    Oh, and lets have a moan about feckless layabouts living on welfare. It’s that epidemic of fecklessness that sweeps the country in a recession.
    It’s noticeable that the areas of difficult recruitment are where there’s a lot of deprivation, not where wages are other wise high.

  • Alison Wolf – who I know well – is a member of no political party. This explains why she did not submit a motion to LD conference. CentreForum is an independent think tank publishing work by a wide range of people, and is not able to propose motions to LD or any other conference. Anyone is welcome to read our papers and propose motions based on them – for or against. We publish quite a lot of papers, and it would not be realistic for conference to debate all of them, even without reading papers written by other think tanks.

    We know that national pay scales kill. Literally. Professors Carol Propper and John van Reenen have estimated that relatively low wages compared with the private sector mean that there are 6100 excess hospital deaths each year in London and the SE who would not die were NHS wages to be proportionate to local wages. (this is net of a small fall in the death rate outside London and the SE). http://cep.lse.ac.uk/textonly/_new/research/productivity/jpe_final_payRegKill.pdf.

    National pay kills more people than cars, planes, trains and power stations put together. Why would we support it?

    Local pay does not have to mean local pay bargaining – Tesco, for example, has local pay set by national pay bargaining. As liberals we should support local pay rates, but ensure that high paying areas have to cover the costs of local pay premia, and that low cost areas get to keep the money saved.

    (Disclaimer – I work half time at CentreForum, and half time at LSE)

  • I’m very confused, Mr. Tall.

    On the one hand, you argue that getting rid of national wage settlements will allow deprived areas to increase the wages and salaries of their public sector workers, so they can attract and retain more and better staff. Where they’re going to get the money to do that is beyond my expansive imagination. But then you argue that what should happen is that they should cut wages and salaries for public sector workers, thus (you hope) forcing those workers to seek employment in the private sector at a salary lower than their current one but higher than the new one. These two goals seem to be completely at odds.

    You believe (and I stress believe, because both this article and Professor Wolf’s study don’t actually seem to provide any evidence, just a lot of assumptions and bunkum) that private sector investment is being witheld from deprived areas because high public-sector pay rates siphons-off all the good workers – and you hope that these private sector jobs will appear quickly enough that the newly impoverished public-sector workers don’t leave the area for one that pays better.

    Even if your belief is correct and your hope is fulfilled, what then happens to the public sector? Do we lower significantly standards in public sector recruitment (and therefore quality in public services), in line with the reduced salaries and in order to take account of the best current public sector workers being forced to go to the private sector? If so, how does this square with, for instance, the government’s goal of new teachers being first-class graduates? Deprived areas will need to recruit their teachers straight out of school, because anyone who has even been to university (and paid the new exorbitant fees) let alone got a first-class degree will be too expensive and you want them working in the private sector anyway (and hope, quite in vain in my opinion, that they won’t just go to somewhere that pays better in both the public and private sectors).

  • There is logic to local/regional pay structures – if that’s what we had at the moment, would people be arguing for national agreements? But it’s a bit of a leap of faith to assume that the pupil premium money (for example) would be spent on higher wages for teachers in poor areas. There are countervailing influences to direct money to follow “success”, so over time we might still end up with sink schools.

    The biggest problem – and I think Vince Cable was hinting at this in his first comments last week – is the introduction/transition. Do you decide on a figure and slash (that’s the word the papers will use) pay in some areas? Do you impose pay freezes selectively until the numbers are right? People who took out mortgages on the basis that they are paid £x pa are going to be pretty miffed if they suddenly or progressively find that they are earning £x-y. And if you only do it for new employees you’ll get the problem of people doing the same job and getting paid differently for a reason which is hard to justify on the ground.

  • But it would, I believe, be a step in the right direction not only in improving individual employee rights,

    That, Im afraid, is exactly how the right wing explain such policy moves – from a Liberal it’s quite astonishing and an example of how veryfar the party has changed with its head in the clouds of power.

  • The starting point to your article is disingenuous. By drawing parallels with football and referring to the incentive of increasing wages to attract high calibre public servants to deprived areas you are implying that removing the national wage agreements would be a positive move. The reality is different. In time of austerity and a government talking about reducing wages to parity with private sector this would be a move designed to erode public sector wages. A wolf dressed as a sheep.

    Secondly it should be pointed out that deprived areas also exist in places with high living costs. For example i work in a school in an expensive area of london but with a far higher than average free school meals. People in needed don’t necessarily live in areas that are identified as deprived.

  • Stuart Mitchell 18th Mar '12 - 4:38pm

    I don’t see why you are so confident that this type of flexibility will result in services in deprived areas being able to attract better quality staff. If, as reports suggest, public sector employers would be expected to pay salaries in line with the local level of private sector salaries, then surely this will mean services in deprived areas ending up paying people less, not more?

    “It seems clear to me where we should be heading: for each individual employee to be able to negotiate their own individual contract, as they do for example in Sweden.”

    Would that mean an end, for instance, to employers being forced to pay their female staff the same amount of money as male staff doing equiavalent jobs? If we had individual baragaining than any kind of discrimination and unfairness in the workplace would suddenly become unstoppable. “Hey, those black workers aren’t too handy at bargaining – let’s pay ’em less!” An individual’s pay would be determined by their own negotiating skills rather than any notion of fairness.

    Finally, as always with these kinds of labour market reforms, we’re told that this is progress, got to move with the times etc. when in fact it’s more accurate to say that the government would like to drag us back 100 years to a time when employers could do pretty much what they liked.

  • Tim Leunig

    Relatively low wages kill – so why then is the focus on cutting wages in the North rather than increasing public sector wages in the South?

    You supporters of this policy need to get your story straight.

    On one hand you say that you need to cut the differential between the public and private sector in the North to create jobs (the aim being to cut the ‘real’ public sector wages in the north by about 10%) and on the other you have your emotive headline which is totally independent of the wages in the north but would require a significant pay increase in the south. If we say 10% again then we would look not at small differentials but up to 20% between north and south. In essence we would again see a transfer of wealth from the north to south.

    I have chosen an arbitrary 10% as I cannot see any less changing things much.

    Also, I deplore your emotive language on ‘national pay rates kill’ – you could say the same about many things that influence something such as the Health Service – including the involvement of profit-making organizations!

  • David Evans 18th Mar '12 - 5:02pm
  • Tory hatred of the public sector knows no bounds. And yet again we try to justify to ourselves their policies. Shakes head.

  • Such a move is very obviously a positive feedback loop for wealthy/poor areas and will further entrench division and destroy equality of opportunity, with those in poor areas getting paid less than those in already well-off areas. The public sector provides a crutch to the private sector in deprived areas, by increasing local demand for the private sector. Who would have thought that the answer to the neo-liberal depression was more neo-liberalism? It looks like we’re going back to the feudal ages,

    Even more distrubing is the idea that a supposedly liberal and democratic party seems to support the exploitation of individual workers (whose bargaining power will be completely undermined) at a time of recession. Modern liberalism is about intervening to balance the power between employees and employers when their is an imbalance. After 30 years of attacks on workers rights, who would have thought that the Country with one of the poorest workers’ rights in Europe should need to further attack individuals.

  • Chris Nelson 18th Mar '12 - 5:24pm

    These proposals for public sector pay cuts in poorer areas greatly unsettle me. The very idea of being a Liberal Democrat is to promote opportunity – to give individuals and communities that helping hand that they need to improve themselves – and I find it very difficult to reconcile my conscience with a policy that appears to do the opposite, of pushing others down, in the hope that the green shoots of recovery will be able to make up the gap amongst the population as a whole at some unspecified point in the distant future.

    Alison Wolf’s report as summarised above is very unconvincing – and for me, the fact that no one has been prepared to come out and debate this policy openly within the Party speaks volumes.

    I fear that – much like Professor Wolf’s last report on qualifications for the Department for Education which threw the baby out with the bathwater with respect to a great number of valuable aspects of our education system – these proposals will be counterproductive. I am also dismayed that these proposals are being apparently steamrolled through without even a modicum of debate or consultation – apparently even excluding backbench MPs – presumably in the hope that us activists will lie down and accept this move as a fait accompli.

    No-one here is going to disagree with the principle of paying public sectors more in areas – such as London – where the cost of living is disproportionately higher. However, in practice this “nuanced” result is very unlikely to be the result, particularly if it is a Conservative Chancellor that is driving the agenda.

    Let’s be brutally honest here – for the public-sector-dependent areas we’re talking about, the approach of cutting back on wages on the majority of the workforce will be an exercise in “shock therapy” – in taking money out of local economies, in the hope that the private sector will be incentivised to fill the gap. When this has been tried elsewhere it has taken many years to pay off – causing considerable problems in the short term.

    For me the Wolf Report raises some serious questions:
    * What effect will big cuts in public sector pay have on areas that are already reeling from a disproportionate amount of public sector redundancies? In the short term, this would be a big nasty shock to the local economies of these regions – reducing the amount of money available in the local economy, with knock on effects on service and retail industries that would surely impede the private sector.

    * How likely is it that the private sector would *really* be able to make up the gap? Comparatively few public sector workers have skills that will readily transfer across to the private sector – and at a time of high unemployment, the idea that employers simply can’t find enough people to fill their vacancies is difficult to swallow.

    * How LONG will it take local economies rebalance? The last time I checked, private sector growth rates were less than 1% nationally, with this figure being much less in deprived areas. These growth rates aren’t likely to shoot up any time soon, and will be made worse in the short-term as local retail and service sectors have to cope with lower consumer spending.

    * What effect will this have on public sector morale and public sector recruitment and retention? Will this simply result in another “brain drain” from North to South?

    * What effect will this have on average household income, mortgage repossessions, child poverty, social mobility, etc, in these areas? I’ve not heard this consequence even discussed.

    * And politically, how difficult will this be at a time when – allegedly – the Chancellor is poised to abolish the 50p top rate of income tax without replacing those funds with something else? Labour are already peddling the line that this is budget will be a case of taxing the poor to give to the rich – and adopting something like this just seems to play into their hands.

    For me, this , this kind of “shock therapy” for the public-sector dominated sections of our economy at a time of low private sector growth seems to be a particularly destructive process, with long-term gains that are uncertain and unproven, and whose timing is spectacularly poor. “We’ll cut your pay now, but we’re going to hope that it all turns out alright in a few years’ time” doesn’t sound like a particularly powerful election message to me!

  • Chris Nelson

    Good and thoughtful post

    One of your points made me think – the private sector filling the gaps.

    If we look at the last time this was tried in the North – the closure of the mines in the eighties. At a stroke lots of hard-working workers came onto the market and there was also a depression of the local wage as miner’s were pretty well paid.

    I do not think there was a massive influx of private investment to take advantage of this and some of the growth in the public sector in these areas was because otherwise the areas would have died. Mind you one of the posters above believes that great cities such as Liverpool should be allowed to die! Is that not the case Mr. Leunig.

    The lack of private investment in the North has much more to do than wages – the distance from London seems to be one of the key drivers and much more needs to be done to counter this. Look at the fuss when the BBC move some operations to Salford.

    The offset in wages needed to counter this London effect would probably need to be very significant indeed.

  • I have just seem Stephen Tall’s tweet about this thread where he suggests there are a lot of posts in favor of a ‘planned economy’.

    I find this a little bit lazy Stephen as I have seen nothing in support of a planned economy, rather a number of points being made about the practicalities and the intention of this policy.

    Instead of tweeting (rather sarcastically it seems) why not come and answer some of the points made by Chris Riley, AndrewM and Chris Nelson.

  • Isn’t this basically the same argument as for regional minimum wages? Regional minimum wages of course were Lib Dem policy for some time, and are now essentially Labour policy as they are in favour of different minimum wages for London and Scotland.

  • While I generally support the idea of scraping national pay scales, there is a danger that there will be a race to the top among senior managers and professionals. Many head teachers, principals of FE colleges, and university vice-chancellors (not to mention local government bosses) are already able to negotiate personal pay rates., and governors (and presumably councillors) are in practice often powerless to stop everyone wanting to be in the upper quartile, at least if they have a senior manager whom they want to keep. I think the answer is probably a legal obligation to keep pay rates within some rather broad bands based on turnover, staff employed, etc., albeit perhaps with regional variations.

  • Why the assumption that if you pay more you necessarily get many better candidates. Why the unjustified assumption that national fixed wages ‘kill’… anyone with an ounce of knowledge of statistics would know that there are far too many variables involved to draw that kind of inference from the data. Really quite a silly comment by Tim Leunig.

    Underneath all this I see the corrupting influence of neo-liberalism. That is to say a fundamentally simplistic, reductionist belief that behind every human decision and lies a desire for more money.

  • Malcolm Todd 18th Mar '12 - 8:17pm

    @Rob
    Whilst I’m not at all convinced by the proposal in this post, I think you’re misrepresenting the arguments:
    1. I don’t think there’s an assumption that if you pay more you necessarily get better candidates; just that, everything else being equal, you will tend to get better candidates and that’s a good thing. The point is not that all the best people go after the most money they can get, but that people like to feel that they’re getting properly rewarded for their skills and efforts, and in practice the more money you are paid the more you feel you’re being properly rewarded.
    2. It’s quite clear that Tim Leunig isn’t “assuming” anything of the sort, he’s basing his claim on specific and quite detailed research. Whether the research really justifies the opinion is something I can’t judge: I tried reading the report he linked to and found it quite impenetrable as a layperson. I suspect that they haven’t really been able to adjust for all the factors involved, it just seems improbable that one can draw such a clear correlation let alone a causal inference. But that’s me (and you) making assumptions, not Tim L.
    3. Ignoring the bogeyman term of “neo-liberalism”, I think in practice, if you take the time to delve beneath the surface antagonism, most supporters of free-market solutions don’t hold such a ridiculously “simplistic, reductionist belief” — in fact, I think you’re the one who is adopting a simplistic, reductionist characterisation of the motivating principle which is not that “behind every human decision … lies a desire for more money” but that everything else being equal, most people will prefer to have more money rather than less (see my point 1). I don’t find that a particularly controversial assumption.

  • Tony Greaves 18th Mar '12 - 8:47pm

    “supporters of free market solutions” – for public services?

    This website seems to be infested with very clever neo-classical economists who are forever dreaming up fancy theoretical solutions to everything that happens and most of all for public services, outflanking the Conservative ministers in many cases, yet claiming to be Liberals. Hey ho. It seems that some of these people even have high access to Liberal Democrat ministers, or should I say to their advisers who are also very often very clever people who nevertheless seem to have little grounding or even experience in the real world, either of politics, our party or the real world in which less prosperous people live.

    We saw the same process happen to the Labour Party during their 13 years of office. What these people in and around this party don’t seem to understand is that their views are out of kilter with most of the actual members of this party, not least all the people who keep the party going on the ground. But they don’t care too much about this, do they? All the rest of us don’t have the deep academic understanding of the neo-classicists with their “free market solutions” to every last problem in the world, and their repudiation of the truth that in a democracy only the state can do some very vital things – such as providing essential public services in a fair and equitable manner and ensuring that the economy operates in a fair and equitable manner by controlling the excesses of markets.

    It may be of course that a lot of us simply recognise this neo-classical stuff for the baloney that it really is.

    Tony Greaves

  • Andrew Thomas 18th Mar '12 - 9:00pm

    I am astonished by the conclusion in this article. It sounds like its advocating survival of the fittest. The reason pay is decided nationally is so that each job has a value. It protects the more vulnerable and those less able to negotiate. That is why we have trade unions, which as a Liberal Democrat, I believe are a vital part of our society. Poorer groups of workers are better protected within collective bargaining. I am concerned generally at the direction our party has taken and believe overall these sort of ideas are against our founding principles.

  • Billy Wright 18th Mar '12 - 9:06pm

    Who are out of touch here, the subscribers or the activists; could this topic have gone any worst, have coalition politics really pushed LDP activists to far out to the right; personally I find this latest blog quite disturbing.

  • Tony Greaves (and others saying similar): I completely agree. One day people will realise that the coalition emperor does not have invisible clothes at all. Those of us left (in both senses) will have a fine mess to clear up. I suspect there will be fewer parliamentarians needing right-leaning advisers by then….

  • No mention of this notion prior to or at conference yet three days away from the budget we are presented with a proposal to scrap national pay bargaining for the public sector (a long held aim of the Tories) and without any significant evidence base, discussion or opportunity to reflect on the possible consequences we are about to ally ourselves with a deeply divisive policy. Liberal this move is not and neither is it democratic. If this goes forward Lib Dems RIP.

  • Great article, Stephen. Never mind the nay-sayers! The Lib Dems have indeed become conservative – none more so than the complainants in the comments above, who resist any and every radical change. They can only see the downsides of changing from the status quo, only hearing the yelps of the temporary losers. They don’t have the imagination to see the long-term benefits that this policy will bring to all the country.

  • So, who voted for this?

    The electorate didn’t.

    The lib dem party didn’t.

  • Prof John van Reenen is not a “Neo-Liberal”. He signed the economist’s letter to the Observer AGAINST the current cuts, and has defended Labour’s overall economic record. But he is a social scientist, and looks at the evidence.

    In layman’s terms, his and Carol’s paper takes into account age, etc and what you go into hospital with, and sees whether you leave dead or alive. You are more likely to leave dead if you are in a high labour cost area such as London and the South East. This is figure 1 in Alison report/Stephen’s post. Approx 6000 people more left hospital dead than was expected. This correlates with what we know about London health care – more permanent positions vacant, greater use of agency staff, lower continuity of care, staff who know each other less well.

    So long as local areas get the savings if wages go down, why do Liberals object? Lancashire would get more teachers per student, or lower council tax. Why is that a problem for Tony G?

    What next, liberals to demand a uniform national wage for all workers in pubs, so that the price of a pint goes up in Bolton and staff are hard to get in London so the queue is even longer? If you support national wage scales in the public sector, why not in the private sector?

  • Malcolm Todd 18th Mar '12 - 11:25pm

    @Tim Leunig
    “If you support national wage scales in the public sector, why not in the private sector?”
    But as the posts linked to by AndrewM show, national companies in the private sector do have national wage scales. Or can you point to contrary evidence?

  • @Tim Leunig
    “But he is a social scientist, and looks at the evidence. ”

    I’m a scientist. Economics can never be a science as it is impossible to perform a controlled experiment. It is a field based on speculation and can never be anything else.

    I speculate that the tories are trying to drive down the wages of public sector workers in the north (because they assume they vote Labour). If 6000 extra people are dying in London then the plan to drive down the wages of public sector workers in the regions will result in more deaths there as well. A far better solution would be to reduce living costs in London by (a) taxing the demand side in the form of a monopoly tax on the City to get back the money they owe us, thus reducing demand for housing and house prices (b) compulsory purchase of land around London to build more houses (c) a land value tax. Failing that, some incentives for companies to relocate away from the south east, or punishments for them if they remain there, would be useful. Anyway, the real answer is to bring down the cost of living in London.

    The answer to an unbalanced economy is not to unbalance it further,

  • “So long as local areas get the savings if wages go down, why do Liberals object? Lancashire would get more teachers per student, or lower council tax. Why is that a problem for Tony G?”

    The piece above by Stephen is arguing that wages would go up in more deprived areas so where would these savings come from

  • @Tim Leunig
    Freezing the pay of nurses in the North East is not going to improve health outcomes in London.

  • Malcolm Todd 19th Mar '12 - 12:14am

    Is there any evidence that health authorities, local authorities etc. based in the southeast are desperate to pay their staff more? Or that they have any money to do so?

  • I think one useful thing about a mixed economy, is that if the public sector is strong in an area, and has enforced high standards (pays good wages etc), private sector firms need to pay better (and provide better pensions) to compete. In many areas we should be driving up average wages. The idea of regional pay for public sector workers would seem to entrench, and possibly intensify existing divisions between areas. This, as “our sort” of Liberal, is just the sort of thing we do not need. Gaps between rich and poor have become far too large anyway. Tim Leunig and his ilk should be working out ways of reducing London salaries by 30 – 40% or more, not ever cleverer schemes to make the South East richer! Did Stephen Tall actually claim that public servants in deprived areas would be paid more. I thinkthe market theory might state the opposite.

  • Tim Leunig,

    Messrs Richard Wilkinson and Kate Pitchett in their widely acclaimed 2009 publication ‘The Spirit Level’ set out a very well supported case that virtually every disparity in health outcomes – including life expectancy within cities and rural areas – is affected not by how wealthy a society is or for that matter the pay rates of medical staff – but rather, how equal it is.

    Public sector workers, until very recently, have traditionally earned less than comparably qualified staff in the private sector – at one time justified by greater job security and better pension provision. With pay freezes in place for most public sector workers, that pay differential gap may soon return.

    As a party we are committed to a program of economic and regional rebalancing. Dealing with regional variances with tools such as the London weighting allowance seems to me a more stable and progressive approach than abandoning national pay bargaining and wages in the public sector. As Wilkinson and Pickett have aptly demonstrated, achieving greater regional equality will be better for us all – rich and poor, northerners and southerners, public sector and private sector alike.

  • I live in one of the areas (the NE of England) where presumably pay would be cut under this proposal. I’ve heard many explanations for the weakness of the private sector in this region but the one I’ve never heard is that staff can’t be recruited because they’re earning too much in the public sector.

    The public sector job losses and cutbacks in this region have already weakened the private sector by hitting demand and local purchasing power (in Sunderland city centre, for example, one shop in four is empty) and this policy will merely make that even worse. Electorally, it’s another nail in the coffin for punch-drunk local LibDems bravely trying to defend the coalition with a Tory party which is hated in this part of the world.

  • If anyone wants to know what Stephen Tall thinks about the comments on his article, please visit:

    http://twitter.com/#!/stephentall

    I would have thought it more appropriate for a co-editor to actually engage in debate here, rather than going to twitter, myself.

    Here’s Stephen’s last comment on twitter:
    “Sorry, I value public sector workers, but my top priority are people in deprived communities.”

    Really. So, a policy that will unequivocally drive down wages of public sector staff in poorer areas is supposed to help deprived communities? As Tim Leunig points out, more people die when public sector wages are lower relative to the private sector (in his policy of wanting to kill more northerners – to use an equally emotive counter-argument).

    I took a look at Conservatie Home a couple of days ago and the people posting there were appalled by this plan (in terms of its ecopnomic effects and its effects on future Conservative electability). Your comments on twitter seem to indicate that the thread has been hijacked by lefties. How do you explain the presence of so many lefties on Conservative Home?

    How have we arrived at a point where all three parties are now dominated by right-wing cliques that don’t care a jot about what the membership of their party thinks? Stephen (and those in charge of the Lib Dems in the coalition – not that any of you will ever bother reading LDV), why do you think your opinions are more important than those of the electorate and your party membership?

  • It is true that there is a good case for some regional variation in pay scales. In many private sector organisations there are allowances for staff working in particular places – particularly in London but often other places too. Does this apply to public sector occupations as well ?

    Is it really necessary to sweep away national bargaining to achieve a rather more sophisticated version of this? As for the idea that every individual employee has to negotiate his or her own pay – the mind boggles.

    Stephen, any piece that starts off with even faint praise of the abysmal and club-crippling mess that is football pay policy is not going to a good place!

  • Denis, the immediate answer to your question is “no”. Local Government, for instance, has for many years had what is called a national “spine” of pay points, negotiated nationally. Individual councils then decide, largely, within their own conditions, where particular posts are set within that spine. This has worked relatively satisfactorily. It seems to me this move has been suggested more on in line with “the bonfire of the Quangos”, which has severe downsides as well as up. For Lib Dems that has always sat as an idea to improve democracy and accountability, rather than the second hand nature of quangos, But the Tories are in there burying proper accountability, support systems for the public sector etc. The consequences are yet to be felt, but I suspect that railway privatisation, PFI etc will have been a relative sideshow in comparison with what will come down the track at us. Yes, this IS ideological – and I can tell you it’s an ideology which doesn’t sit comfortably with mainstream Lib Dems.

  • Stephen Tal……………………….. each individual employee to be able to negotiate their own individual contract, as they do for example in Sweden……………….

    In Sweden, I understand, those applying for teaching positions are required to put salary requirements on their application. Not surprisingly this has led not only to a fall in the relative pay of teachers but a steep rise in ‘less qualified’ staff to cover the increased vacancies caused by low wages.

    “The Future of Children”…. Excellence in the Classroom….states (Of particular relevance to policymakers is whether salaries are high enough to avoid widespread teacher shortages. Though such shortages are sometimes measured in terms of vacancies, schools typically find some way to fill most positions . A better measure is the share of positions filled by teachers without full qualifications In high-salary OECD countries such as Germany, Japan, and Korea, the share of such teachers in primary and secondary schools is low: less than 4 percent, as against more than 10 percent in countries such as Sweden and the United States, where salaries (relative to GDP per capita) are low)

    The proposal supported by this thread is soley motivated by the desire to ‘reduce public spending’.

  • Nick (not Clegg) 19th Mar '12 - 9:20am

    Tony Greaves hits the nail on the head once again

  • A number of respondents on here have referred to “public sector pay cuts”. All the leaks suggest that the proposal is not to cut any existing employee’s pay.

    I think that paying people more to work in the inner cities than in the affluent ‘burbs is a very good idea indeed. Where there are recruitment and retention difficulties, something must be done. I would ask all those sceptical of the idea: how would YOU make it more attractive to work in Moss Side compared to Trafford?

  • @Lee Baker
    “A number of respondents on here have referred to “public sector pay cuts”. All the leaks suggest that the proposal is not to cut any existing employee’s pay.

    I think that paying people more to work in the inner cities than in the affluent ‘burbs is a very good idea indeed. ”

    Wrong on both counts. The proposals are very definitely aimed at reducing pay in the regions, almost certainly by freezing pay levels, unless that counts as not cutting pay in your definition. Those that work in poorer areas will get paid LESS.

  • patricia roche 19th Mar '12 - 9:55am

    does regional pay extend to MP’s

  • @steve, what evidence do you have that the proposals are aimed at lowering pay in the regions? Sounds like you’re basing this on a TUC press release. We need to see the evidence before we start foaming at the mouth.

    The leaks suggest that the proposal IS for pay to be higher in Moss Side than Trafford (for example).

  • And if it was correct that pay was to be frozen in future (it is of course already frozen across the board – and this was done with cross-party consensus) then that suggests that the pay for teachers and social workers etc in Tower Hamlets and Hackney and Haringey is to rise, no?

  • Lee Baker

    From what I have seen the message from the proposers of this policy are confusing two things

    Firstly is this apparent gap between the private and public sector wages in the North crowding out the private sector. There have been callings to this by posters above. My position is that I would like to see this comparison as I do not know what teachers, fireman, nurses, policemen etc could be benchmarked against. For this argument to succeed there would need to be a real cut of 10% in public sector wages ( a rough calculation on the numbers I have seen)

    This is totally independent of the second point which is that in the South the public sector cannot attract the staff because there is no taking into account the cost of living difference (mainly based on housing I may add). This is the argument put forward by Tim Leunig and others. The current London Weighting is around 10% (if I am correct) and I would guess we would then need to increase the wages by another 5% or so in order to attract the public sector workers.

    We would then end up with a differential of 25% between the salaries of this working in lower cost areas compared to high cost areas (i.e. the regions versus London/SE)

    But this is not all we now have Stephen Tall’s article adding in the differential between affluent and deprived areas within regions to attract staff to them.

    It all seems incredibly complicated and how it will be managed is beyond me – admin will be a nightmare.

    As others have said any regional differentiation in pay by large companies and the public sector is already managed by salary ranges within grades and crude weightings for those working in central London for example but this is already in operation so I assume that they want to move to a different system?

  • As an outside observer, it is interesting to see the Lib Dems splitting so clearly into their social democratic and neo-liberal wings. I wonder which prominent right-wing Lib Dem will be the first to move over to the Tory party. It looks like it is only a matter of time.

  • @Lee Baker
    I’m not the one foaming at the mouth and creating absurd contradictory arguments (as pointed out by so many of the eloquent posts above). I’m not the one that starting making unfounded claims and appeals to base emotions about people dying in London as the result of national pay bargaining (following the argument through leads to the conlusion that regional pay would lead to increases in the number of deaths in the poorer regions).

    I haven’t read a TUC press release, but I have read Conservative Home, where most of the posters think the idea is barking mad and will make to Conservtive Party unelectable. By logical extension, do you think the Tory party is full of foaming at the mouth TUC members?

    There is a disturbing trend in this country (as exemplified by the article above) to use phrases such as ‘the evidence shows ‘ when there is actually nothing of the sort present (no scientist would ever use such a phrase for fear of ridicule – what evidence??). For example, the table uses the alternative opportunities argument when it suits the conclusion and then ignores it for the low wage area! This is really basic stuff. It’s as far from actual evidence as anyone would care to imagine.

    The biggest flaw in the reasoning is that it doesn’t take ito account the fact that poorer regions/localities are obviously correlated with low wages, so the policy would, on the whole, lead to those working in poorer areas earning less money, thereby increasing recruiting problems and driving down local consumer demand, further entrenching the regional division of wealth and poverty. It is a policy dressed up as being useful to recruitment in an extreme outlier (such as tower hamlets) rather than the norm (everywhere else).

    The reasoning presented above assumes that there is no link between deprivation in a particular area and the living costs of the area! It’s mad.

  • So, as Tim Leunig says, we need to pay more to public sector workers in the affluent SE and, according to Lee Baker, we need to pay more to public sector workers in deprived areas like Moss Side. (BTW, how do we pay less to those in ‘leafy suburbs’ where, housing led, ‘cost-of living’ is high?) On the other hand, we are told, that high public sector pay, in these same deprived areas, prevents private sector recruitment and must be stopped.

    Am I alone in wondering what this policy really means

  • Malcolm Todd 19th Mar '12 - 11:19am

    It becomes steadily more apparent that this proposal is a Humpty-Dumpty plan: it means whatever you want it to mean…

  • The Union leaders are being disingenuous about this. There are already regional differences because of London Weighting which was introduced exactly because the cost of living and working in London is higher than in the regions. Teachers even have differential rates between inner and outer London. Headteachers and deputy headteachers already have local negotiations with their governors to agree performance targets and spot salaries, albeit these are on a nationally negotiated spine.

    This surely points the way to how to satisfy both sides. There could be a nationally agreed “base rate” together with locally agreed supplements which would reflect the difficulty of recruitment and local cost of living or working – many who work in central London are forced to live in the suburbs because of housing costs but this is somewhat negated by the cost of commuting.

    To a large extent local councils are already establishing local pay rate by assigning different pay scales for the same job, especially in the administrative work. Within London for example there is no consistency in what grade the administrative head of the team assessing pupil’s special educational needs is appointed to.

    There are already provision in a number of local government schemes for personal protection for individuals affected by restructuring. These are cash limited so a person’s pay is frozen until the salary for their new, lower graded post, reaches their protected rate. Again, something similar could be implemented although I cannot see anywhere in the proposals that this would be necessary as no cash reductions in pay are proposed.

    Yet again the Labour Party and their paymasters have been allowed to “get their retaliation in first” and probably mis-represent proposals that have not even been published in detail yet. They did this with the “university fees” debate where they have frightened off young people from poorer backgrounds with talk of huge debts. Let’s make sure that thought through proposals are properly agreed in the coalition talks first, then released and not leaked or floated so that this sort of speculation goes on in future.

  • Peter

    Indeed there are already structures in place for this so why the big announcement with the continued rhetoric against public sector workers?

    If the continued structures are not working then what is to replace them and how will this reduction in public sector pay be carried out, what are the benchmarks being used and how will this differential pay within regions work

    These are fair questions and again there is no detail – a similar thing we see with the announcement of leasing out the roads announcement today.

    I think the union-bashing within liberal forums is getting quite worrying. I do not pretend they are not without problems but imagine a world without them?

  • Mark Pack

    I have just seen your blog and the tree points you make.

    I think the problem I have as I have tried to express above but perhaps not well enough

    1. Regional variation in pay exists now and, as you say, should be improved if necessary. No particular issue with this

    2. Higher pay for those working in difficult schools – again I agree but challenge how easy this would be in practice. The Government seems to want to move to schools setting there own pay rates and we may actually see overall increases as the ‘leafy suburbs’ try to attract the best teachers in competition with the inner-city. Without a central control then this will not work. Seems to be a contradiction in policy

    3. The point that you do not address is the elephant in the room. The drive seems to be this report about the crowding out of the private sector in the regions (NE, Wales, NW, SW) In order for this to be addressed the suggestion is equalizing the pay by freezing pay increases in this regions. This will lead to a real 10% pay cut over time. On the other hand we have Tim Leunig suggesting that we actually need to increase pay in the south to encourage staff. We could then see massive salary differences (upwards of 25%) between people doing the same jobs in the regions and those in the SE/London.

    It is this final point that worries most people and also there will be the difficulty in managing the system with all these inter and intra regional variations and the continued benchmarking of the local salaries of public and private sector workers. The differential will be changed if we ever get back to growth and so we could find it difficult to recruit public sector workers in the future as their pay lags behind the private sector

  • Total public expenditure per head in London in 2008-9 according to the treasury was £9666, the highest anywhere in the mainland UK. This compares with only £7339 in the East Midlands.

    On health, where staff pay will form a large proportion of total expenditure, public expenditure per head was £2031 in London compared with only £1619 in the East Midlands. If health outcomes in London are worse then it must be because London’s health service is much more inefficient than elsewhere. Until they improve their efficiency levels then giving them a greater proportion of public money will only lead to greater inefficiency. Moreover, these figures would demonstrate that each £1 spent on health outside London provides greater health benefits than spending it in London. Contrary to Tim Leunig’s emotive outburst, it could be argued in this way that we can save more lives by moving health spending from London to other regions.

    Spending on transport (a vital piece of infrastructure for promoting economic development) was £826 per head in London compared with a paltry £242 in the East Midlands!

    There is already a huge bias towards London in public spending. We need to reduce this bias not keep on increasing it.

  • toryboysnevergrowup 19th Mar '12 - 4:10pm

    “It seems clear to me where we should be heading: for each individual employee to be able to negotiate their own individual contract, as they do for example in Sweden.”

    Firstly, I very much doubt what you say about Sweden is correct – but I think you have no comprehension that the balance of power between employer and employee is just not equal and this is especially the case in those areas with higher unemployement. Just because you are in a coalition with the Tories it doesn’t mean that you have to swallow neo classical economics hook line and sinker.

    And given what you propose will in effect entail a switch in government spending away from low wage to high wage regions where does that leave you on regional economic policy – or don’t you think that matters in a fixed currency unit and you can just leave the market to sort it all out ?

    Is there any Tory policy for which it is not possible to find a LibDem to provide a justification? I’ve yet to identify one.

  • John Stevens 19th Mar '12 - 4:22pm

    Good post.

  • bazzasc

    Can I address several points that you have made in response to my post and to others. I am a retired local government officer and a current school governor so I may have more intimate knowledge of the systems than others.

    First, your point about schools in leafy suburbs vs those in deprived areas. If the pupil premium works as it should, there should be a relative movement of funds away from wealthy suburbs towards more deprived and needy areas. That should enable those schools to be able to budget for the increased staff costs. In fact the primary school where I am a governor faced a similar position when we appointed our current headteacher. Because we have a diverse population including a large council and social housing estate together with a highly mobile school population, many of who are new to the country, we have all the factors to produce a string of excuses for poor outcomes. We ended up in a federaation, sharing a head with another school, because of the poor results. When we advertised we offered a salary for a larger school and made it clear that we wanted a strong leader with proven experience. That was only possible because of some flexibility in pay that were were able to exploit and our results are now up to the national average at key stage 2. In a survey of our parents we had an amazing 100% stating the school provided a good education for their children.

    So yes there is already flexibility if a body is willing to fully utilise it. Unfortunately there are many cases where this is not possible. Take a worker in a Jobcentre. Apart from the London weighting of about £4000, they receive the same pay as their equivalent in the East Midlands (as somebody else has brought up that area because in part London weighting affects the “per head” comparisons) I would suggest that the difference hardly makes up for the extra cost of living and working in London. That by the way includes the extra precepts for the various transport projects and the Olympics included in council taxes. For classroom teachers this sort of regional cost of living variation makes the difference between being able to afford to buy a home compared to being forced to apply for social housing as an essential worker.

    Of course there are other areas where extra costs or challenges should be recognised. Why should somebody who teaches in the poorer areas of Birmingham be paid the same as somebody who teaches in the “leafy areas” of Stratford Upon Avon?

    So rather than looking at pure figures and imposing absolute pay scales, should we not progress towards a system that offers equal rewards in terms of standards of living and greater rewards for working in more challenging situations?

    We should also recognise that successive governments have moved civil service jobs away from London to the regions to exploit the lower wage and other costs and also as political motives. This leads to the daft position where my tax office is in Newcastle despite my being in London. Something to bear in mind when comparing the cost of infrastructure projects in London and the SE.

  • Peter

    Thanks for the response

    Just a couple of things though – firstly for the job centre member of staff you mention surely 4000 will make up around a 15-20% differential in pay with the regions. How much higher do you want that differential to be?

    Also, nowhere do you address the point that one of the aims seems to be equalizing private and public sector pay in the regions. If you say the current London wages are too low then couple that with a real decrease in the wages in the regions of say 10% you could be looking at a difference of 35-40% between the same job in London and the regions. All this points to a more that a public service issue. Big companies would not accommodate this.

    It is clear that heat needs to be taken out of the London economy and shared around but instead there is a proposal to draw more money in from the regions.

    Also, the idea of having these focused wages based on type of establishment, location etc sounds nice but can you imagine the complexity of administration.

  • Gary Shearer 19th Mar '12 - 8:07pm

    This has a lot to do with Tory antipathy for the public sector and very little to do with the best outcome for the public sector or communities. A one size fits all policy clearly isn’t perfect, but lowering the wages of public sector workers in deprived areas is a disgraceful suggestion on more than just a moral level. As somebody said further up, it’s all part of the race to the bottom.

  • Giselle Williams 19th Mar '12 - 8:40pm

    “Andrew Thomas Mar 18 – 9:00 pm
    I am astonished by the conclusion in this article. It sounds like its advocating survival of the fittest. The reason pay is decided nationally is so that each job has a value. It protects the more vulnerable and those less able to negotiate. That is why we have trade unions, which as a Liberal Democrat, I believe are a vital part of our society. Poorer groups of workers are better protected within collective bargaining. I am concerned generally at the direction our party has taken and believe overall these sort of ideas are against our founding principles.”

    ===========
    A comment I can agree with!

  • The nature of having a single currency across a varied multi-region economy means that equal pay in cash terms does not automatically mean an equal outcome in terms of standard of living. So from that point of view, variable regional pay rates are rational and defensible.

    And of course since we’re talking about the public sector there’s a social justice angle to factor in too, so the ‘danger money’ bonuses granting greater rewards for undertaking more challenging roles in regions of high deprivation are good too, for drawing talent to where it is most needed.

    This should be achieved more by raising, rather than cutting pay. Taking money out of certain regional economies to benefit others isn’t going to help anybody in the short term, even if it does create the space for private sector expansion at some future date. There has to either be inward investment on the table to provide that expansion right now, Keynes style, or no pay reduction at all.

  • Good post Stephen. I suspect that in 10 years’ time national pay bargaining in the public sector will seem as anachronistic as 1960s and 1970s-style prices-and-incomes policy (statutory control of wages, dividends, prices etc) does today: a curious remnant of the bizarre notion that central planning is a sensible way to run the economy.

    It does serve to highlight an interesting tension between the often-professed belief in localism of many Lib Dems and their social-democratic distaste for anything that might dilute national, uniform, patterns of state provision.

    No doubt if someone were to suggest the regionalisation of the minimum wage, they would be treated as a pariah even though this was official Lib Dem policy in the 1990s.

  • @Lee Baker
    “All the leaks suggest that the proposal is not to cut any existing employee’s pay.
    I think that paying people more to work in the inner cities than in the affluent ‘burbs is a very good idea indeed. Where there are recruitment and retention difficulties, something must be done. I would ask all those sceptical of the idea: how would YOU make it more attractive to work in Moss Side compared to Trafford?”

    The leaks suggest that the proposals are explicitly aimed at reducing the gap between public and private sector pay. Public sector pay was traditionally below private sector levels (compensated for with a more generous pension settlement, which are now being abolished) but over the last two decades, public sector pay has broadly grown in line with inflation whilst private sector pay has grown at rates below inflation – so public sector pay rates have gradually over-taken private sector pay-rates. In London, that gap is about 0.5% – in other regions it is as much as 8%.

    That gap is highest in the most deprived regions – so if the policy is aimed at cutting public sector pay in areas where it’s highest compared to private sector pay, then where is the facility to increase public sector pay to attract the best people to those same areas? This goes back to what I said about Stephen Tall apparently wanting two mutually exclusive outcomes from this: cutting pay for public sector workers in deprived areas and increasing pay for public sector workers in deprived areas. A policy cannot accomplish two mutually exclusive things, but maybe this is the nature of coalition government (or maybe it’s the nature of the Lib Dems).

  • you don’t have to be of the liberal left to think that this is a very very bad idea, but you probably do have to be of the liberal left to think that only the liberal left would think that…

  • Gareth Jones 20th Mar '12 - 2:55pm
  • ..never mind Scotland going Independent, I can see England splitting into two countries, the rich South and the poor North.. I am from the North East and have always prided myself in being English but find myself wondering what if anything I have in common with the South… It increasingly seem like some foreign country..

  • Brian Powell 25th Mar '12 - 4:07pm

    When there was individual wage degotiation in the Glasgow shipbuilding yards all the wages went down,; it was divide and rule.

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