Opinion: No economic case for regional pay

The clamour against regional pay received renewed vigour yesterday as 25 Liberal Democrat backbenchers endorsed a paper calling for the government to scrap any plans to link public sector pay to private sector earnings across the UK. The paper prepared in the office of John Pugh MP, analyses the evidence submitted to the Treasury and Office of Manpower Economics and concludes that there is no economic case for introducing regional pay.

The government has considered the introduction of regional pay in light of concerns that public sector pay premiums across the UK are ‘crowding-out’ the private sector. However statistics show that the private sector is not struggling to recruit staff, as vacancies in the public sector go unfilled for longer and a survey of business leaders shows that the majority have not struggled to compete with public sector wages.

The timing of this paper is particularly appropriate in light of the decision of 19 NHS trusts in the South West to sign a cartel agreement effectively introducing regionalised pay into the region. Unions have expressed concern that these actions by ‘rogue’ NHS employers will undermine national negotiations covering pay and conditions under the Agenda for Change agreement and hit the morale of NHS staff

Regional pay has been opposed in the House of Commons by several Conservative MPs from non-metropolitan areas and Welsh Liberal Democrats have tabled a conference motion on the issue for discussion in September.

The biggest concern with the introduction of regional pay is that low wage areas outside of London and the South East will be worst hit, as cuts to public sector pay create knock-on effects for private sector retail and service industries. There is also the risk that the quality of public sector services will decline as staff migrate to areas of higher pay.

Nick Clegg has declined to support any proposals that will exacerbate the north-south divide and it is hoped that this resolve will hold strong in the coming months. So far signs are encouraging.

* John Pugh was Liberal Democrat MP for Southport until 2017 and was elected as a Councillor for the Dukes ward of Sefton Borough Council on 2 November 2017.

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31 Comments

  • Great. So when will I get my extra 10k that I would be earning if I did the same private sector job I do now but in London?

  • Liberal Neil 13th Jul '12 - 11:35am

    So you’re presumably calling for the scrapping of London weighting too?

  • Charles Beaumont 13th Jul '12 - 12:30pm

    This isn’t an “economic case” but special pleading. If the point is that we need public sector votes, just call the spade a spade.

  • @Simon McGrath

    No. Perhaps you’d like to show us the data that supports that analysis? Segregated by occupation, of course.

    What you’ll find is that there is very little overlap between the job roles in the public and private sector in Southport, and where there is (HR, accountancy, admin), the gap will be in the private sector’s favour, as it is throughout the country.

  • @Chris Riley, if you’re a teacher, you might work in London and get the weighting, or somewhere up north where you can get a house for 150K, would you choose to work in the South East, where you’re only going to get a part share of a house through a special scheme, or if your partner has a well paid job. There are genuine problems with the current setup.

  • Tony Dawson 13th Jul '12 - 2:20pm

    @Liberal Neil

    “you’re presumably calling for the scrapping of London weighting too?”

    It should never have been allowed in the first place. Totally arbitrary. Cross a line and you’re worth more. Why? All it does is inflate the economy in the area concerned.

  • Chris Riley 13th Jul '12 - 3:46pm

    @Alastair

    I fail to see how lowering wages in real terms in the north would help with teacher recruitment in London. It’s housing that is the problem, as the Lib Dems realise better than the other parties. In fact, teachers should be paid incentives to work in some of the most deprived parts of the country, even though they have the lowest wages, because those are the parts of the UK where good teachers are needed the most. The profession already has a retention problem, and exacerbating is would not be wise.

    @Simon

    The health sector, and specifically nursing and some forms of care, is the only area where there is an exception. I would argue that this is because private providers have tried to drive wages down and quality suffers as a result, because I feel that the argument that NHS nurses are overpaid is not a very wise or well-supported one.

    As to your argument about accountancy and HR etc, then I would say that I would need to see the data to be convinced, that you have to examine travel-to-work areas as a whole and bear in mind that ‘working in Southport’ and ‘resident in Southport’ are two different things. It is not impossible that what you say is true; you would know Southport far better than I (although I am not unfamiliar with Southport), and I am sure that you’d rather not have your constituents have their wages driven down because London is overpriced.

    But Southport is also a rather unusual community (and with all due respect, it’s voting patterns rather point that way) and is not typical of the kind of communities that will eviscerated if you tried to drive down local spending power because some London-based economic liberals, don’t understand the labour market. Who do you think lives in the big houses in your town, Simon? NHS accountants? Some of them might be accountants, but they made their piles in the private sector.

    It is not always easy to directly compare salaries in the public and private sector and certainly not as easy as some of the simplistic analyses suggest. The Hutton Review had a go and concluded that starting salaries (which are some of the easiest figures to obtain) were probably lower in general in the public sector, and obviously lower in many cases, but the lack of overlap does make it hard. Not many police officers, radiographers or HE lecturers work in the private sector, whilst the public sector is not where you find most electricians, driving instructors or investment bankers, to choose a handful of examples.

    Then, there’s the problem that people in the UK are usually not that good at how much other people get paid, which is genuinely very interesting, but does lead to them thinking, often correctly that ‘other people’ get paid more than they really do (and, of course, more than they themselves). The best remedy would be for everyone to publish their salaries, but I seem to remember some modest antipathy amongst party members for that plan!

  • Carol Propper et al have shown that the absence of regional wages makes it harder to recruit good doctors and nurses in London, leading to a greater use of agency staff, and higher death rates. How can we endorse that?

  • Richard Dean 13th Jul '12 - 8:34pm

    Did Carol Propper et al not notice that the useof regional wages makes it harder to recruit good doctors and nurses in the regions, leading to a greater use of agency staff, and higher death rates there. How can we endorse that?

  • Richard Dean 14th Jul '12 - 11:26am

    Simon, No, apologies for any confusion. I am instead noticing that Carol Propper’s research seems to be fundamentally flawed, as a result of bias towards benefitting London.

    If the conclusion reported by Tim Leunig is correct, then there must logically be a limited supply of good doctors and nurses. If there is a limited supply, then employing more of them in London will logically mean that less are available for the regions, which in turn will mean that the problems he complains of – greater use of agency staff, and higher death rates – will appear in the regions instead of in London.

    Tim and Carol appear to be seeing the issues in terms of competition for scarce resources. I wonder if this is reaaly the right way of looking at the problem? Even if it is the right way, it’s wrong to assume that higher agency fees and death rates in the regions are less important than in London.

  • Up north we have long detected an attitude among certain Londoners and others who live in the South East that civilisation ceases north of Watford. We resent this and the concept of regional pay reinforces our resentment. A job is a job is a job and if people want to live in London that’s their choice: north of Watford we cannot see that living in London makes anybody more efficient or in any way better employees deserving extra

  • Stephen Hesketh 14th Jul '12 - 2:04pm

    Could anyone imagine proposing that pay should be related to sex, colour, nationality, political persuasion, sexual orientation, religion etc?

    So how is it that it is acceptable to suggest that anyone having the unbelievable misfortune not to live in London should be paid less for doing the same job, under the same conditions, in institutions that are identical except for not being in the South East of England?

    It is beyond any reasonable doubt that many of our ills are compounded by the dominance of the south eastern region over all others. If the recent (London-centric) scandals tell us anything it is that too much wealth and power is already concentrated in the South East. Is it any wonder that Scots are looking to devomax or cutting links with London altogether?

    Liberals and other progressives should be fighting for a free, democratic and more equal society. Regional pay is surely a complete anathema to such a society and carries with it more than a whiff of low pay for the many and bonuses for the few.

    @ Mike C – I think you hit that particular nail squarely on the head.

    All power to John Pugh and his like-minded colleagues.

  • Excellent piece John Pugh. Lib Dems can not allow regional/local pay to happen.

    It’s all very well everyone going on about London, but regional/local pay will only futher harm poorer areas in the UK

  • Stephen Hesketh 14th Jul '12 - 4:35pm

    @Tom
    I think you will find that people go on about London because we in the north, not to mention those in the south west, understand all to well what ‘regional pay’ means … once away from the south east, the rate for the job will be less.

    If you wish to understand why many northerners (etc) feel the way we do towards the cultural domination from the south east just watch an everyday weather forecast or hear commentators talk of ‘the home counties’ (with all that implies) to get a flavour of the petty bias in our society. If you want something more substantial just ask why, as did Nick Clegg, successive governments have set the country’s economic policy to benefit the ‘Square Mile’ rather than manufacturing and the rest of the nation.

    In the meantime I genuinely sympathise with those low paid London workers who are also victims of the huge economic inequalities in our society.

    @William Hobhouse and @Simon Shaw
    Odd that the highest paid region also has the highest house prices, the highest rents and lowest unemployment etc. Clearly the phasing out of London Weighting would have wider economic benefits to the country as a whole.

  • Stephen Hesketh 14th Jul '12 - 5:16pm

    @Stephen Hesketh! On second thoughts, this is such a successful economic policy, I think it should be extended to cover the entire country rather than introducing lower regional pay for the rest of us!

  • To those who defend regional pay may I point out the vicious circle that it generates. Pay a person in the South East more than their equivalent elsewhere and they have more money to spend. Therefore anyone selling a house grabs the opportunity to inflate the price. Next people complain that the cost of houses has risen and therefore they want more pay: they get it and with more money available in the market place the sellers of houses again grab the opportunity to sell at a higher price and so the spiral goes on. Could it be that advocates of regional pay are motivated by jealousy of our quality of life in The North?

  • Stephen Hesketh 14th Jul '12 - 9:29pm

    @Stephen W (6:19pm)
    That is Stephen “I’m a conservative: by choice, by temperament, by experience, and by Party. When it comes to debt and the deficit I am a hard-liner” Wigmore.

    Be this as it may, clearly some of your points about pay in the UK versus those in other parts of Europe are valid, but this particular debate is a national rather than international one. A wider comparison of UK levels of social and economic justice compared with those of other European countries might prove enlightening. Perhaps one for your homepage? Once again however, I feel you might not agree (by choice, by temperament, by experience etc) with mainstream Lib Dem thinking.

    For the sake of clarity, I work in the private manufacturing sector and have seen the loss of several former benefits including a final salary pension that I guess many in the public sector have not seen (setting aside heavy public sector job cuts that hit the north disproportionately), either way this is a different question. I remain unconvinced that regional NHS and other workers being paid at a reduced regional or local rate will benefit local communities to a greater extent than would a proper manufacturing policy and regional investment. A national health service should have national care standards for patients and national pay for staff.

    Regarding the more prosperous south east subsidising ‘the regions’; all we wish for is a level playing field and for economic and industrial policy, bank lending, exchange rates etc to be formulated to benefit the country and economy as a whole. Then the South East wouldn’t require special allowances because its economy wouldn’t always be running ahead of the rest of the country.

  • Stephen Hesketh 15th Jul '12 - 7:39am

    To be honest Stephen when I quickly looked over your homepage I was struck by the thoughtful nature of many of your views and writings and did think (the present debate excepted) why isn’t this man in the Liberal Democrats!

  • IF there is any move from the Government to try and introduce regional pay, I take it that it will be applied to ALL – I assume MP’s their staff, SPAD’s etc will be subject to regional pay differences – Also, what of other areas? There are many Dr’s, Nurses and other specialised trades all members of the TA – Why should these people be expected to volunteer their services in defence of this country, knowing that the person alongside of them is being paid more than them? I suspect that like many things, any move to regional pay will come with a very large caveat – We’ll reduce your pay, but not OURS!

  • Shaun Young 15th Jul '12 - 2:07pm

    @Simon Shaw
    Regardless of whether an MP spends ‘Most of their working time in London’, they can claim expenses and allowances for those costs – But the cost of living for an MP in a constituency in the North, is going to differ from an MP in the South – Why should an MP be treated any differently from a Nurse or Police Officer? If an MP travels to work, they claim travel expenses, if a Nurse travels to work can they? No, as I said, if Regional Pay is introduced it should be for ALL – MP’s are no exception – If they live in a constituency whith lower housing costs etc, then they are no different to any other Public Service employee – As I suspect, when it comes down to it, MP’s will set themselves apart as being above all others!

  • As we know, and the expenses scandal highlighted, MPs are among a group of workers who have more than one “base”. This type of employment requires a different way of remuneration and expenses from the more prevalent “one base, with or without travel” arrangement. I suspect, Simon S, that although something over 50% of their time is “in London SW1”, at least 30% is in their constituency base.

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