Local bargaining has been seen as a solution to unfair regional wage levels, but the argument makes many false assumptions
Should there be national pay and grading structures in the public sector or should we experiment with local pay determination? Perhaps we should go further still, as Professor Alison Wolf suggests, and base all public sector pay on individual contracts (‘Wrestling with pay’, March 5–11).
From time to time, these arguments reappear, typically towards the end of recessions, when the assertion is made that we are paying teachers
and nurses too much in Tyne & Wear and that local bargaining would sort that out.
But a number of false premises underlie these arguments. One is that there is a great deal of regional variation in pay in the UK. In fact, there is much less regional difference in earnings than is assumed. Outside the Southeast, there is more similarity than difference.
The second false premise is that local pay rates or individual contracts are the norm within the private sector. In reality, this is not how large private sector companies operate. Consider the multi-site companies, the ones that are nearest in size and complexity to large public sector bodies, with branches in every town and city. They all operate with national pay and grading structures.
Large supermarket chains and banks all have national pay and grading structures, underpinned by analysis of skill levels and job evaluation. Some have regional or market supplements in the form of London and Southeast allowances. Others have developed zonal pay systems that are similar to these allowances but, in addition, allow for movement to a higher paying zone if the labour market indicates a change.
A third false premise is that an employer might vary pay by location or by individual, with a complete disregard for skill levels, competency or experience. Lots of the larger companies in the UK reward skills and competencies that are carefully benchmarked against national pay data. For certain occupations, such as electricians and plumbers, there are still national arrangements that set pay to protect skill acquisition and to avoid undercutting on labour prices in contract tendering.
A fourth assumption is that there is no flexibility in the existing national pay frameworks in the public sector. In fact, the more recent moves towards single status pay arrangements in councils and universities have built a degree of local pay determination on to national frameworks. Equal pay was the midwife of change and structures based on job evaluation were vital.
In the case of school teachers in England and Wales, flexibility was used to set four pay zones. In addition, there were higher salaries in London to be used to retain experienced staff. Movement of schools between the pay zones has been discouraged. The School Teachers’ Review Body has said it is wary of higher pay variations and potentially widening the gap between successful and less successful schools.
The Agenda for Change programme in the NHS, with its national structure based on a careful job evaluation of skill levels, was born out of the mess left behind by local trust-level bargaining in the mid-1990s. For about four years in the middle of the 1990s, pay setting was devolved to each NHS trust. This turned into a copycat exercise, where a few trend setters agreed rises of 3% and others followed suit through a time-consuming and expensive process.
Shortening the process is vital in terms of cost. In the private sector, the cost of duplicating effort by having all sorts of variation does not make business sense. Local decisions by local managers would be frowned on severely by finance directors. Where some variation is allowed under zonal pay systems, it is tightly controlled.
One final point about Tyne & Wear. Nissan, the car manufacturer, located there many years ago to benefit from the skills base in the area. It pays rates that reflect the rest of the car industry in the UK and not discounted Northeast rates. Those advocating localised pay don’t get the point about pay and skill levels.
Alastair Hatchett is head of pay services at Incomes Data Services
