Here comes summer... by Tash Shifrin

24 Jul 08
&and with it the spectacle of swathes of public sector workers taking to the streets. Soaring inflation is cutting real-terms pay, say the unions, but employers claim they can't afford any more. Tash Shifrin reports

25 July 2008

...and with it the spectacle of swathes of public sector workers taking to the streets. Soaring inflation is cutting real-terms pay, say the unions, but employers claim they can't afford any more. Tash Shifrin reports

The headlines in recent months promised a 'summer of discontent'. And while summer weather has been in short supply, discontent over public sector pay restraints is widespread and growing.

Earlier this month, picket lines went up outside town halls, refuse depots, libraries and schools as almost half a million council workers went on strike over pay. The two-day action by Unison and Unite followed their members' rejection of a 2.45% offer. In the same week, thousands of civil servants at the Driving Standards Agency, the Maritime & Coastguard Agency and the Home Office took part in rolling days of action. This week, Identity and Passport Service staff began a three-day strike.

The strikes were not the first this year nor are they likely to be the last, as unrest spreads across the public services. The National Union of Teachers and the 280,000-strong civil service membership of the Public and Commercial Services union both took strike action in April and will both ballot for more in the autumn.

In the NHS, most unions have accepted a three-year pay deal, worth 2.75% in its first year. But Unite's 100,000 health service members who voted to reject are set to ballot for action. Discontent is rife, too, among probation staff, who voted for strikes over pay in an indicative ballot last month, and even in the police, after the courts refused to overturn ministers' decision to stage their 2.5% pay award last year.

Around 250,000 staff in the further education sector are currently mulling over the latest pay offer from employers. Postal workers have not joined the pay revolt as yet, but last month's Communication Workers Union conference voted for strikes over pensions and job losses. No-one is happy.

These battles follow a sharp rise in the level of industrial action last year. Office for National Statistics figures, released in June, showed annual days lost to strikes were at their highest level since 2002, at 1.04 million. The surge was driven almost entirely by public sector workers, who accounted for more than 96% of the strike days.

The stakes are no small matter either. The public sector pay bill, which hit £161bn in 2006, accounts for a whopping 32% of all government expenditure and 12.4% of national income. The government's fears for the public purse and its determination to hold down pay loom large over the specific disputes in which employers and unions are locked.

Heather Wakefield, Unison's head of local government, says the council workers' battle is 'not a political dispute' and the union is taking on local government employers, rather than the government.

But she adds: 'Obviously, we're trying to make central government listen too 75% of local authority funding comes from central government. Clearly, a resolution to this dispute has at some level to involve central government.'

Local Government Employers' head of negotiations Phil White is focused first on his mandate from the town halls. He says the total value of the 2.45% offer and additional sums aimed at those on the lowest grades is 2.5%. The LGE has had 'a very, very clear message' from town halls that this is the limit they can afford. 'For some, it's too much,' he adds.

But he also recognises a wider context. 'There's a limit to what we can talk about. Funding is dictated by the Comprehensive Spending Review settlement. The reality is that we could increase the offer only by increasing council tax.'

And, as council tax accounts for such a small proportion of authorities' income, a 1% rise in overall expenditure would require a 4% tax hike. This 'gearing' means that 'there would have to be a huge increase in council tax to make a modest increase in the offer', White says. And a rise could run into the council tax cap, he notes. 'Even if that was politically acceptable [to councils], the government would still have its say.'

Town halls are not seeking to get any additional grant out of the government to deal with the situation, he says. 'There's been no political move that I'm aware of to secure additional funding for pay.'

The unions, however, dispute the LGE's contention that there is no more money in the town hall coffers. Reserves are 'at a record level', Wakefield says, with £11.6bn in England alone and another £1.7bn held by schools. 'Over £3bn of that is unallocated, and that's slightly more than a sixth of the local government pay bill.' She suggests this could fund a 16.5% rise, far more than the unions' claim of 6% or an extra 50p an hour.

It is an argument the employers' side rejects. 'The whole point of reserves is they can be used only once,' a spokesman says. 'This is not a sustainable way to deal with pay.' And as striking council workers staged rallies in the sunshine, CIPFA chief executive Steve Freer headed for the radio studio, telling the BBC's World at One that it was 'bad financial management' to use one-off savings. Contingencies were there to deal with problems such as last summer's floods, he added.

The argument could run for a while. Wakefield notes that councils' reserves are 'more than double the 2002 level'. It's all very well for town halls to say they are saving for a rainy day, but for low-paid staff, that time is now, she says. 'For us, it's chucking it down, to be honest.'

But while the wrangling over town hall finances continues, the shared anger among public sector workers has prompted unions to direct their action at the government. Like Wakefield, Mark Serwotka, general secretary of the Public and Commercial Services union, can point to specific problems for his members. In the civil service, the money for cost-of-living rises and for service increments must be found from the same financial envelope.

The result has been that low-paid staff earning between £13,000 and £18,000 a year are being asked to accept very low or even zero consolidated pay increases, he points out. At the Department for Work and Pensions, 40% of staff will not receive any pay rise.

But Serwotka argues that the government's policy to limit public sector pay 'means it's not possible to negotiate acceptable outcomes with public sector employers'. That is why the PCS is concentrating its fire on the government. 'The dispute is focused on the government and the Treasury pay remit,' he says.

The PCS will ballot members for 12 weeks of action, including strikes and stoppages rolling across service areas, such as education and criminal justice. The aim is to collaborate with other unions wherever possible, he says. The public sector unions will also discuss how to co-ordinate their disputes at the Trades Union Congress annual conference in September.

Disgruntled trade unionists have also signalled their displeasure with a series of demands to be put to Labour's national policy forum. General secretaries were last week reported to have met senior ministers and Number 10 staff to discuss a slew of demands, including a new agreement on public sector pay and the right to take secondary strike action.

The worsening relations between the Labour government and the unions have drawn comparisons with the 1970s a comparison ministers have been strangely reluctant to dispel. Chancellor Alistair Darling has repeatedly conjured up the past, urging: 'We cannot allow inflation to become embedded in this country as we allowed it in the 1970s, 1980s and 1990s.'

On the eve of the council workers' walkout, he reiterated: 'We don't want to see that again, which is why I've said again and again& we cannot allow inflationary wage increases, because that would mean that everyone, especially people on lower incomes, would suffer, and nobody wants to see those days again.'

But the unions are unimpressed by the inflation argument. Serwotka notes that while inflation has been rising sharply, public sector pay has not. Rather than fuelling inflation, workers are struggling to keep up with double-digit price rises for basic items in their shopping baskets, he says.

Analysts also dispute the government's claims. Ken Mulkearn, editor of Incomes Data Services' Pay Review, says: 'It's not the case that inflation is being driven by domestic factors. Wages aren't part of it.'

Pay rises in the private sector, which are running at about 1 percentage point above those in the public sector, still lag behind inflation. 'For most employees, their pay in real terms, adjusted for the cost of living, has been falling,' Mulkearn says. 'The government's statements are shorthand for a desire to keep public spending down.'

Antoine Bozio, research economist at the Institute for Fiscal Studies think-tank, agrees. The argument that pay must be held down to reduce inflation is 'not very convincing'.

He explains: 'The government is saying: restrict public sector pay to restrict inflation. We're saying that public sector pay should follow average earnings and economic growth if you want to be able to attract skilled people. The right way to think about a pay settlement is that it's not linked to inflation. Pay rises in the public sector of more than 2% as long as they are within the range of productive growth in the economy don't affect inflation.'

Bozio says that assuming the productivity growth in the economy as a whole stays at around 2% the average over the past ten years a 'simple computation' of this growth, plus the target inflation figure, produces a figure for pay rises of around 4%. An increase of this order would not threaten the target, he argues.

Serwotka says that in meetings, Darling has acknowledged that his desire for pay deals to be 'consistent with' the inflation target was 'not a 2% policy'. He adds: '[Darling] said it's a target, not a rigid policy, but afterwards nothing happened. That's not how employers are seeing it.'

And the Treasury is noticeably loath to reveal what it thinks 'consistent with' really means. A spokesman refuses to define the phrase but says: 'The right pay award for any individual workforce needs to reflect the specific labour market position of that workforce, affordability [and] value for money as well as being consistent with achievement of the government's Consumer Price Index inflation target of 2%.'

The IFS warns that the government's pay policy is not doing it any favours in the long-term. It was 'unfortunate on the part of the government' that it decided to stage pay awards such as that for the police, Bozio says.

'It was a very small sum of money saved by the government& compared with the long-term costs. Clearly the point for the government is to attract and retain staff and retain the confidence of public sector staff [so] they need pay settlements that please the staff.'

How the pay revolt will play out in the long term is not clear. Mulkearn points to most health workers' acceptance of their three-year deal as a good sign for the government. 'In the NHS, they have got a result. They've effectively won industrial peace for three years and those increases are low.' He adds: 'The government in some ways is in quite a good position. The tricky thing for them is that the inflation outlook is bad, driven by food and fuel increases.'

The government has attempted to future-proof its pay strategy by pushing for three-year deals where possible a point emphasised by Prime Minister Gordon Brown when pressed by Conservative leader David Cameron over the despatch box. 'They're a barrier against inflation, [provide] stability for the future and are a signal to the rest of the public sector and private sector,' he said.

But the grievances over pay offers and the grim economic prospects are increasingly restricting the room for negotiating such deals. The LGE's Phil White puts the situation bluntly. 'The unions said to us at a very early stage that there was no prospect of a three-year agreement,' he says. Only underpinning against inflation could have made this a realistic offer for debate. 'That's something we couldn't contemplate,' he adds.

And in the NHS, the unions that signed up to the long-term deal have nevertheless issued a warning for the years to come. Unison general secretary Dave Prentis told his union's conference that the agreement must be reopened if prices rise in its second or third years. 'We won't take no for an answer. If the government refuse, we will ballot for industrial action and that's a promise,' he said.

Teachers' ire has also been stoked by the three-year formula. The NUT is effectively in dispute over both the forthcoming pay deal, covering the three years from September 2008, and the existing deal covering the past three years.

The union urged the School Teachers' Review Body to seek a new remit from ministers after inflation rose above the agreed trigger levels in both 2006 and 2007. But the government has chosen to shunt the problem forward, giving the review body a remit to report again only in 2009.

NUT head of pay Barry Fawcett says this has shown that the mechanisms designed to protect teachers from the effects of rising prices are 'totally ineffective'. He adds: 'People are increasingly asking questions about the independence of the review body. If all the review body is doing is becoming a creature of the government policy of driving pay down, then it's not really fulfilling the purpose that the government says it's there for.'

Fawcett is not the only one to suggest that this year's pay revolt could cast a long shadow over industrial relations mechanisms. Serwotka says pay awards have been imposed in department after department 'because there's nothing to talk about', given the constraints imposed by government. 'It's wrecking industrial relations.'

Wakefield adds that with local government pay 'trailing way behind' the rest of the public sector, there are 'huge recruitment and retention problems 70% of councils say they can't recruit [enough] social workers and social care staff'. She adds: 'All this is counter-intuitive. It doesn't add up in policy terms.'

And IDS's Mulkearn says the face-off over pay is hampering wider initiatives designed to improve public sector productivity, modernise the structure of the workforce and equalise pay between men and women. 'That's difficult to achieve in a period of pay restraint because there isn't the carrot to address it,' he says.

As the council workers and others across the public sector meet to debate their next moves, Mulkearn warns: 'It isn't just the unions creaking under the pressure of pay restraint. It's the employers as well.'

Brown and Darling's chances of an autumn marked by mists and mellow fruitfulness are not looking too good either.


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