Opinion: Regional Pay – bad economics, appalling politics

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Looking back at Eluned Parrott’s article Lib Dems should say no to regional pay, what has surprised me is some of the comments that this reasoned article has generated.

Perhaps the first thing to challenge is the myth that public sector pay is totally rigid, whereas private pay-setting is always flexible and highly localised. It simply isn’t as simple as that.

The reality is that extensive national patterns of pay exist in the private sector, from large companies down to even medium-sized firms. At the same time considerable flexibility does already exist in the public sector, for example whilst there are national pay spines in local government, each council has flexibility as to which points on the scale it uses for which jobs, with a range of pay assessment models used in different councils. Likewise, schools have lots of flexibility around pay setting, especially for senior staff. Most notably there is a long-standing principle of a London weighting, both in the public sector and for most private companies. The advocates of the motion at conference (F39, being debated on Tuesday afternoon) are not arguing against any of these existing practices – but merely arguing against attempts to further exaggerate local or regional pay differentials that already exist.

Some other facts need to be considered.

Yes, there are pockets of the public sector where attracting staff can be difficult due to high living costs. However, in the vast majority of these cases the long-term solution is to ensure more affordable housing (and often curbing transport costs as well). Exaggerating local and regional pay differences will certainly not help control housing costs in the south east of England. If anything increasing pay differences between regions will just help fuel the housing bubble.

The other point to stress is that there is simply no evidence that national public sector pay levels ‘crowd out’ the private sector in certain regions. The advocates of more local public sector pay keep putting forward this argument, yet strangely they never come forward with any evidence to back it up. In fact the private sector in depressed regions benefits substantially from the demand created by public sector employment in that region and could suffer if public sector pay levels were to be further depressed..

One further thing to consider. The advocates of regional pay often say the public sector must automatically match every practice from the private sector. Yet this is missing a huge point. The public sector is different from the private sector. A private company is ultimately only accountable to its owners. In contrast, when the government makes changes to the public services it is responsible to the electorate as a whole and must consider the cumulative impacts of its policies on the wider economy and society.

Regional public sector pay could easily reinforce regional inequalities, starting with reducing spending power in many communities. And in the long-term, no region will face economic success if its unique, or even only selling point, is low pay.

The economic arguments of regional pay simply don’t stack up. However, the political arguments are even worse.

It is time to get real. Public service workers have already had their pay frozen for two years and those in local government for three years running. The government intends to cap increases at 1 per cent for a further two years. These real-terms pay cuts have led to the lowest paid public sector staff now getting little more than national minimum wage. Public service workers are also facing changes in their pension schemes, involving greater contributions and longer working lives for reduced pensions in their retirement.

The move towards regionalisation of pay must be seen in this context. Regional pay is bad economics and bad politics.

* Cllr Stephen Knight is a member of the London Assembly and a councillor in Richmond.

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6 Comments

  • Stuart Mitchell 24th Sep '12 - 8:33pm

    “Regional public sector pay could easily reinforce regional inequalities”

    You underplay this. It is inevitable that increased regional pay will massively amplify regional inequalities, and inequalities generally. Socially, it would be divisive and a disaster. Good article.

  • Simon McGrath 25th Sep '12 - 6:03am

    So are you against London weightings? Pretty odd for a london GLA member,

  • Good article. I only hope that the message gets through to the parlimentarians however! I wrote to Tessa Munt my MP on this very issue. However in her reply she did say that she felt there was merit in the idea of regional pay. My heart sank, again.

  • Simon McGrath –

    Stephen stays, “there is a long-standing principle of a London weighting, both in the public sector and for most private companies. The advocates of the motion at conference … are not arguing against any of these existing practices – but merely arguing against attempts to further exaggerate local or regional pay differentials that already exist.”

    I think it pretty clear that neither the movers of the motion nor Stpehen Knight oppose London-weighting.

  • So the current system is perfect and any change would make things worse?

    I agree that is is bad politics, because people will immediately pick the examples of where people will loose out to the status quo future state, and most people are not prepared to listen to the full arguement.

    However that is not the same as it being unfair or bad economically.

    Also there are some public sector workers who suffer under the current arrangements, but who cares lets not have a difficult conversation or do anything that would upset the unions who are only interested in the “average” person employed in each sector.

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