Opinion: if you pay peanuts, you risk bad governance

PeanutsIt is reported today that, in a further attempt to control spending, George Osborne is proposing further changes to public sector pay and conditions. Before he does though, perhaps he ought to make time for a little light reading…

Last week, the National Audit Office (NAO) published the extravagantly titled “Building capability in the Senior Civil Service to meet today’s challenges”, which sounds, on the face of it, to be a white knuckle, edge of your seat kind of read. And yet, if you’re keen to change the way that we are governed, it contains a warning that it might be even harder than you thought.

Here are some of the rather troubling facts that have emerged from the beancounters at the NAO;

  • senior civil servants have experienced a real terms pay cut of approximately 17% since 2009 – salaries have been frozen since then, and pension contributions increased substantially
  • one-third of senior civil servants have left over the past two years
  • 20% of senior civil servants are thinking of leaving over the next twelve months
  • senior civil servants recruited from beyond the civil service earn on average 24% more than those recruited from within it

And, strangely enough, just as the Government has sought to bring in private sector knowhow to improve the bureaucracy, the Civil Service Commission notes that “there is an increasing danger that [low pay] is limiting the fields of candidates for some jobs, where the salary on offer is simply not competitive”.

The problem, from the perspective of a politician, is that if you believe in the free market, and in free movement of workers, using the Civil Service as a means of demonstrating your toughness on public spending risks chasing out those whose skills are marketable elsewhere, the very people you need to deliver big changes in government. Likewise, you’re hardly likely to attract the sort of talent you want if you can’t compete with the private sector.

The Government needs to address the question of Civil Service pay and conditions as a matter of urgency, rather than simply looking at ways to cut the paybill. A strategy of paying talent, developing it and retaining it is essential in ensuring that the machinery of government is modernised to face a digital economy and straitened finances. So, perhaps it is time to think about unifying the Civil Service once more, reintroducing common pay scales across the Departments, adding skills supplements where pay comparisons demand them.

Also, it’s time for another proper look at the role of the senior bureaucracy. In recent years, the concept of the faceless bureaucrat, answerable only to his Minister, has been replaced by a more confrontational, spiky relationship between those scrutinising government and senior officials, as evidenced by Margaret Hodge in her role as Chair of the Commons Public Accounts Committee. Such a change is welcome, but it does provide further grounds to give government a wide berth. After all, is it really worth being undervalued (a director general earns approximately 30% of their private sector equivalent) and publicly humiliated?

Sadly, the answer is as obvious as it is unlikely. Pay the market rate, attract and retain talent, run the country rather better. You see, good administration costs. It’s just that poor administration costs even more, as calamities like the west coast rail franchise have demonstrated only too clearly.

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14 Comments

  • Eddie Sammon 26th Jun '13 - 7:29pm

    I broadly agree Mark. I’m not against all cuts, but I think fiscally conservative people need to learn a bit more about risk and expected return. If you reduce investment in the civil service, then yes you might save some money in the short term, but what are the long term costs of this?

    I think we really need to take the economic high ground away from the fiscal conservatives, which arguably is beginning to happen but we need to make sure it doesn’t go to Labour in the medium and long term.

  • I think for the NAO survey to be taken seriously by those outside of the civil service, we need to compare and contrast it with what has been happening in the private sector.

    >senior civil servants have experienced a real terms pay cut of approximately 17% since 2009 – salaries have been frozen since then, and pension contributions increased substantially.
    Only frozen since 2009! Many in the private sector have had salaries frozen for much longer and had their pension scheme effectively ripped up.

    >one-third of senior civil servants have left over the past two years
    Without knowing the size of the job pool size being referred to, the transformations it has been undergoing, and how many of the leavers received ‘encouragement’, it is difficult to determine what this really means. However, the good thing is that this has frozen their civil service pension entitlement, which means less for future taxpayers to fund. It also means that there is room for the promotion and/or appointment of new blood – the question is what is the nature of the cultural change this is bringing about and is it desirable. Also the voluntary departure of senior personnel can give and opportunity for disruptive organisational transformation with less confrontation and expense (ie. needing to make senior/long serving staff redundant).

    >20% of senior civil servants are thinking of leaving over the next twelve months
    Potentially a good thing, see above. However, we should be concerned that it is probably the most able who are voluntarily moving on, rather than those who should be sidelined.

    >senior civil servants recruited from beyond the civil service earn on average 24% more than those recruited from within it.
    Whilst this may be so, once all their costs and future liabilities are taken into account, they may in fact be cheaper to employ than those appointed from within.

    It would be interesting to see how many of those senior civil servants who have left in the last two years have actually managed to make the transition to the private sector and actually increased their earnings by 30% or more overnight.

    Sorry Mark, whilst I understand your point about the significant loss of knowledge and skills among senior civil servants – which is potentially very damaging if not addressed, I’m not interested in the sob story as life is just as hard in the private sector and there is no guaranteed indexed-linked final salary pension to look forward to.

  • Peanuts and monkeys… remind me again how many civil servants are on 6 figures. How many get paid more than the PM. Many civil servants have awarded themselves vast sums, sums they would never command in the private sector.

  • Eddie Sammon 26th Jun '13 - 11:08pm

    We need to stop the politics of envy against public sector workers as much as private sector ones. We can’t justify public sector cuts on the basis that there are private sector cuts. The only thing that matters is what is best for the country.

  • You do understand that a common pay scale across departments will probably mean a race to the bottom for most departments. I think its risky as in order to get an agreement, most civil servants ‘losers’ would seek to bank their existing benefits so you end up with a two-tiered workforce. Its already happened with pensions reform which generated widespread resentment

  • Matthew Huntbach 27th Jun '13 - 11:18am

    Indeed. We are regularly told that people doing fairly routine finance admin jobs in City corporation need to be paid millions to do it, that’s necessary to attract talent. Yet with executive posts in local government, which involve a great variety of issues and so are far more challenging, we are told we must cut bloated salaries which are about a tenth of what is routine for a top banker. I was sorry that when here I pointed out that there was something wrong with this, all I got was pooh-poohing from the current generation of Liberal Democrats.

    I am so sorry to find out, from what I experience in Liberal Democrat Voice, that the party seems to be very far removed from the one I joined. We know it is losing experienced and once-keen activists at an alarming rate. The only new recruits it seems to be getting to replace them are people whose economic views would have been considered extreme right-wing even for a Tory when I first joined the party.

  • Dave G Fawcett 27th Jun '13 - 12:32pm

    Peanuts… Monkeys. PeterTtyzack makes a valid point; one that I have always argued. Our MP’s are, in effect the board of directors of an international business and as such should be paid the going rate. I know from personal questioning that the view of Nick Clegg (when questioned on this at one of his ‘town hall’ sessions before the 2010 election) is that being an MP is a vocation and should not be pursued as a career for monetary gain, but frankly the amount we pay our elected representatives tends NOT to attract the best people. Many MP’s, certainly up here in the North East, are frankly second rate and would never be considered as directors of even a small company.

  • It’s a fact of life that usually get what you pay for.

  • Roland said, ‘only frozen since 2009! [his punctuation] … Many in the private sector have had salaries frozen for much longer..’
    Really? what counts as much longer than 2009 Roland? 2008?? But you said MUCH longer -so simce when, and which companies?

    Facts, not propaganda please.

  • @johnmc
    Significant parts of the IT sector have lived with zero or near zero pay increases since the internet/dot-com bubble burst in 2000, with the way to get a pay increase being to: change jobs, get promoted, deliver above expectations. I.e. no automatic annual pay increase that takes account of inflation etc. etc.
    I suspect that, once you remove the pay increases granted to senior personnel from the statistics, many others will also have experienced low levels of pay increase, from before 2009 – particularly as the global financial crisis hit the UK 2007.

  • Its not about the politics of envy (yes I work in the private sector). Its about value for money and its about the allocation of scarce resources. There are too many public sector and quango senior staff who are paid large sums but who have been promoted way beyond their abilities and are paid far more than they are worth. Often they are then paid off to move on. Of course this also happens in the private sector, but the difference is that unless private companiss have monopolies, ultimately they will fail if they pick poor decision makers as leaders. In the public sector, councils that are poorly run can still tax us year after year. Id like to see research that shows that councils for example are more successful the more they pay their top executives.

  • Eddie Sammon 27th Jun '13 - 9:40pm

    I know I wasn’t being fair when I said the “politics of envy”, all I’m saying is some on the right (not saying you) are too fiscally conservative when it comes to investing in civil servants. After all, we don’t want second rate economists etc.

    I also know a huge quango that I want abolished were the head was paid £350,000 per year and entry level jobs are at £40,000, so I know what you mean that the civil service can sometimes feel like a gravy train.

  • David Evans 30th Jun '13 - 6:43pm

    @AC Noblet
    “It’s a fact of life that usually get what you pay for.”

    True. Of course it’s even more of a fact of life that you rarely get more than what you pay for, but you can easily get less. The problem with Senior Civil Servants is that getting rid of them is almost impossible, just look at what happened to the CQC senior staff.

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