Local pay for the public sector: a row the Lib Dems and the Coalition will want to dodge?

The Huffington Post published an excellent dissection of the twists and turns the debate on local pay for public sector workers (sometimes called regional pay) is taking within the Lib Dems:

Letters written by the Lib Dem Chief Secretary to the Treasury Danny Alexander [suggest] the number two minister at the Treasury appeared wildly enthusiastic about civil servants being paid different amounts depending on where they work as recently as the start of this year.

But subsequent letters show Alexander softening his stance, suggesting he’s come under pressure from fellow Lib Dems over the proposals, confirmed by George Osborne in the 2012 Budget. The Chancellor announced he was looking at local pay variations for civil servants working at the Department for Transport, The Department for Work and Pensions and the Home Office.

Here are screen-grabs of those two letters. This is the first, written in January 2012, with the part circled showing Danny Alexander saying ‘I am keen to see local, market-facing pay introduced across the UK’:

And here’s the second, written in April 2012, with the circled quote showing some dilution of enthusiasm, with Danny saying only ‘I believe there may be benefits to local areas across the UK of more local, market-facing public sector pay.’:

What affected Danny’s enthusiasm for the policy between January and April?

Most likely it is the hostility among many Lib Dems to the policy: from the party leader, Nick Clegg, to many of the party’s MPs, as well as Peter Black AM here on LDV.

Does that mean local pay is dead? Not necessarily. To understand why, it’s important to appreciate the subtle but crucial distinction between regional public sector pay (which implies a set, flat rate across a region) and local public sector pay (which distinguishes between, for example, easy-to-recruit-to suburbs and vacancy-riven inner-cities within a region). Back to the HuffPo article again:

Number 10 says the discussions going on at the Treasury are about local pay, not regional pay. There would be pay zones set up, but they wouldn’t carve the country up into distinct regions. Instead areas would be allocated a pay-zone, which would translate into quite a patchy map of England and Wales.

What the government appears to be looking at is a system where someone in an outlying area might get paid less than someone working in an inner-city area. The Birmingham Post suggested this would mean someone working in the public sector in Dudley eventually earning less than in Birmingham.

This model already exists at the Ministry of Justice, which adopted local pay variations for the Courts Service in 2007. Those changes saw, for example, Manchester and Portsmouth put into the same pay bracket for courts staff.

So although it doesn’t seem like it on first reading, actually Clegg and Alexander are not contradicting each other. That doesn’t mean there isn’t a problem within the Lib Dems over this, though. … These comments [from the Guardian letter, linked above] are almost identical in tone to the arguments being made by the unions, who oppose any form of pay variation – local, regional, whatever. And if you look at the Lib Dems who signed that letter (Lorely Burt in Solihull, Andrew George and Stephen Gilbert in Cornwall), it’s clear that people in their seats would be the sorts of people to see a pay freeze under any local pay variation.

The row will come to a head next month, when the independent pay review body will report back to the government on whether local pay could work in other departments, in a similar fashion to the courts service.

There is a further example of local public sector pay already taking place — as set out in the Coalition Agreement — to add to the example of the Courts Service:

We will reform the existing rigid national pay and conditions rules to give schools greater freedoms to pay good teachers more and deal with poor performance.

I’ve previously nailed my colours to the mast on this issue — Time for the Lib Dems to blow the final whistle on national wage settlements — advocating local pay which recognises the different market conditions that prevail when recruiting to vital public sector jobs:

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.

However, I am almost certainly in a minority in the Lib Dems. And even though Danny Alexander’s letter makes clear that there would be no reduction in the overall public sector pay bill as a result of local pay — there would simply be a gradual rebalancing over time to reflect the local job market within a region — it would inevitably be a controversial move among those who would lose out relative to those public sector ‘winners’ whose pay will rise. Put bluntly, those who stand to lose are more likely to shout louder than those who stand to gain: it’s classic loss aversion, and there are few more averse to lost popularity than politicians.

After a month of budget U-turns, the question has to be asked not only if Nick Clegg and Danny Alexander are willing to try and sell local pay to their party, but also if the Coalition Government is really up for this fight?

* 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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30 Comments

  • What right has ANY Lib Dem minister in a Coalition, governed by agreement, to be writing letters to anyone saying that he (a representative of Lib Dems in government) is “keen” to see ANY massive new policy implemented which has not previously been consulted properly with the Parliamentary Party as a bare minimum and, arguably, wider within the Party?

  • Except it won’t be ‘supporting a greater number of jobs for the same expenditure’ will it? It will be the same number of jobs with less money, sucking money out of regions which desperately need government expenditure.
    Local pay is not as bad, but needs to be extra pay for working in a difficult area, not as yet another divisive attack on public sector employees, who are fed up to the back teeth with this government. (I know – I’m married to one of them!)

  • …………….., not as yet another divisive attack on public sector employees, who are fed up to the back teeth with this government. (I know – I’m married to one of them!)…………..

    A ‘public sector employee’ or ‘one of the government’?

  • “And even though Danny Alexander’s letter makes clear that there would be no reduction in the overall public sector pay bill as a result of local pay …”

    What he actually says is a great deal less clear-cut than that. On the contrary, in the current climate I think there would be enormous pressure on departments to use this as a way of saving money.

    Unfortunately this is the kind of issue where trust is very important. Local pay could be applied in a beneficial way, or it could be applied in a harmful way. Can we trust ministers not to use it in a harmful way? Judging by the way that this government’s spending cuts have already disadavantaged the most vulnerable, the answer is no, as far a s I’m concerned.

  • I think what is clear is that, at best, Ministers see this as getting more for less and reflecting market pay rate. This means that Stephen’s view that deprived areas would attract higher pay will not happen as wages in less affluent areas tend to be lower.

  • I don’t understand why liberals, who like localism, dislike locally determined pay. So long as an area gets the same pot of money, all local pay means is that local people get the choice of more pay and fewer workers, or lower pay and more workers. The decision is up to them – that is a localist, liberal solution, surely?

  • Stuart Mitchell 10th Jun '12 - 1:59pm

    I don’t know why you persist in the belief that regional pay would mean people in deprived areas getting paid more. Take note of what Danny Alexander says :-

    “Local pay brings with it, the potential to support a greater number of public sector jobs for the same level of spending.”

    There is only one way to interpret that – regional pay would lead to lower wages in deprived areas, not higher.

    At its heart this policy is about paying people in deprived areas less money for doing exactly the same job as somebody who lives in a more affluent area. It’s a socially inequitable policy and I applaud those Lib Dems who are opposed to it.

  • If anyone believes that this is anything more than a scheme for saving money at the expense of public sector workers they must have been living in a cave for the last two years.
    The whole debate, this time around, was sparked by the call for public sector salaries to be REDUCED in less affluent areas because currently private businesses are unable to match such salaries and hence recruit staff.

    As for….”These measures are tough. Some people will lose out. But we need dramatic measures to boost growth. We can’t afford to just sit here watching the economy settle into the mud. Something must be done.”…..

    That sounds exactly like the ‘Mail’ view; “I’m all right, Jack; those losing out won’t include me”. Anyway, according to George Osborne, the problem with the economy’s all the fault of “Johnny Foreigner”!

  • Strange isn’t it that non-public, national organisations, you know like private companies and such, rarely have regional pay agreements. They all seem to get by with national agreements + London weighting. Why should the public sector always be driven down to the lowest common denominator?

  • Simon McGrath 10th Jun '12 - 3:58pm

    Those who argue against regional pay seems to be saying that workers in the private sector should pay higher taxes so that workers doing similar work to them in the public sector should not only get much better pensions, sick pay etc but be paid more for doing the same work. How is this fair?

  • Simon McGrath 10th Jun '12 - 4:00pm

    @Adrian sanders “Tim Leunig – it’s not localist when the decision to end national pay rates is taken nationally against the wishes of local areas such as my own.”
    If the taxes were raised locally this would be fair enough. But what you actually want is to be able to tax people more in the more affluent parts of the country so you can pay above markets rates.

  • “So long as an area gets the same pot of money, all local pay means is that local people get the choice of more pay and fewer workers, or lower pay and more workers. The decision is up to them – that is a localist, liberal solution, surely?”

    ????????????

    How on earth can “local people” influence the number of civil servants employed by a given government department in their area, or the amounts those civil servants are paid? Perhaps you mean “local bureaucrats”, but somehow I doubt whether even that will be true.

  • Stuart Mitchell 10th Jun '12 - 5:11pm

    “Perhaps because those private sector employers aren’t running an annual loss equivalent to 20% of their income.”

    In what way is that relevant? Alexander states that the policy has nothing to do with reducing the level of overall public spending.

  • Tony Dawson 10th Jun '12 - 5:13pm

    The variations in regional pay in the private sector have little at all to do with the people in particular areas being in short supply with the relevant skills or more intrinsically productive. A lot of the variation is to do with the structural advantages of having a region centred on a single national capital which then gets massive ‘knock-on’ infrastructure improvements etc. The logical solution would be to charge the landowners in those areas extra taxation on the unimproved value of their land holdings. This would stop the businesses in the area from handing out extra pay to people who do not work any harder or better. ‘London Weighting’ is a marvellous way of artificially-inflating the salaries of people living in a particular area and helping to maintain artificially-high rents and prices in that area. Without it, the economy in the London area would have to readjust to a more natural level.

  • Adrian – I am happy for you to have the right to set the same pay scales as everyone else, simply that you shouldn’t be forced to.

  • “If we can get reduce distortions between the public and private labour markets, and get more staff and possibly higher infrastructure spending in the regions, all from the same policy, then we should.”

    Ah. More staff for the same (or possibly less) money.

    Of course comments like this tend to confirm the suspicions that this is really about reducing the average rates of pay in the public sector (and perhaps in the private sector too).

  • The current system works well in that it (a) encourages public sector staff to work in less desirable areas, where the compensation is a higher standard of living due to lower land values and (b) it provides a stimulus to economically deprived areas. Regional pay means that public sector staff will be less willing to work in poorer areas and will increase regional wealth division.

    I can remember reading the discussion about this subject on Conservative Home, where the overriding opinion was that regional pay is a cranky idea that would cost the Conservatives dearly at the ballot box. Hopefully the Tories will moderate the Lib Dems.

  • Robin Gonard 11th Jun '12 - 8:33am

    1. Danny Alexander refers to local pay for civil servants, teachers, police, NHS employees. Local government already have their own pay scales, so we’re not quite talking about 7 million employees there!
    2. The old argument that “private sector employers” cannot afford to pay the same as public sector employers in deprived areas (if ever was the case, the evidence for this is lacking) is now obsolete. Civil Service recruitment is dead, and schools, police and NHS are in the same situation. There is no competition from the public sector, only hundreds of applicants for every private sector job, actually pushing the wages down (simple market economics!).
    3. Local pay and regional pay make the higher performing workers move to the higher paid areas. There is a risk that the north/south divide will become much worse.
    4. An area that should also be explored is to be much more radical and use “personal pay”. This is when a worker negotiate their own salary and any variations are linked to personal performance. This exisits in other countries and can work, This is also largely the system used for senior civil servants, but gets slammed by Lib Dems and Tories alike because it created the “paid more than the Prime Minister” headlines in the Daily Mail, and the immediate kneejerk condemnation. True personal pay based on actual short and long term performance is what Vince Cable advocate for bankers, why not for public sector workers?
    5. The sterile argument on localism is quite a red herring; if civil servants were paid locally, out of local taxes, and answerable to a locally elected authority/ assembly, maybe we could talk about localism, but really, in this case, we’re comparing apples and pears!

  • 4. An area that should also be explored is to be much more radical and use “personal pay”. This is when a worker negotiate their own salary and any variations are linked to personal performance. This exisits in other countries and can work, …………….

    I disagree! Countries (e.g. Sweden, USA) where CVs are expected to contain details of ‘salary required’ show a far higher use of poorly qualified teachers, etc. than countries that have National Pay Grades (Korea, UK)…

  • “I can remember reading the discussion about this subject on Conservative Home, where the overriding opinion was that regional pay is a cranky idea that would cost the Conservatives dearly at the ballot box.”

    It might well do, but electorally I’m sure it would hit the Lib Dems harder.

  • When times get tough, we always want ‘someone else’ to endure austerity.
    The Germans want southern Europe to take the hit of austerity, and the ‘economic gated community’ of London and the South east, want ‘them up north’ to take the hit of austerity. (sorry… lower regional pay).
    Will anything ever change?

  • local pay is not just about economics, it’s about politics. Does anyone seriously think the policy would even be being considered if the Conservative party had votes in the North.. Because what you are talking about are wage cuts for Northerners, very divisive and not something anyone who believes in a government for the entire nation should support..

  • Stephen W12th Jun ’12 – 1:11am……………Why phrase it as wage cuts? Why not phrase it as more staff or more infrastructure spending…………….?

    You mean like phrasing ‘mass redundancy’as ‘re-structuring’?

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