By Alison Moore
4 March 2010
Supporters of national pay bargaining say it ensures fair and equal wages across the UK. But critics are squaring up, arguing that it distorts the labour market and fails to recognise cost of living differences. Alison Moore reports
Fancy a job as a staff nurse in Tyne and Wear? On a salary close to £27,000, you could be close to affording a home of your own, as the average house price in the region is just above £100,000.
But it is a different story in the south of England. A staff nurse working here would be on the same salary but would struggle to get on the housing ladder, with a typical house costing upwards of £250,000.
Such contrasts are leading to calls for public sector pay to reflect the cost of living and the labour market in each locality. For example, Alison Wolf, professor of public sector management at King’s College, London, recently called for national pay bargaining to be scrapped. She argues that it distorts the labour market, by pushing up private sector pay to unaffordable levels in the North and disadvantaging many deprived – but relatively high-cost – areas, which struggle to get good public sector staff.
It also means that in the bad times public sector organisations can reduce their wage bill only by cutting staff numbers. They cannot shave pay instead, as many private sector organisations have done and as the Irish government is doing with its public sector.
The Institute for Fiscal Studies’ recent ‘Green Budget’ found that public sector pay was similar to that for the private sector for equivalent posts in London and the Southeast but substantially higher elsewhere.
The IFS suggested that any pay squeeze for public sector workers could be differentiated by region – effectively bringing down pay over time in areas where the public sector pays better than the private sector.
Other economists and organisations have also called for either abolition of national pay deals or greater regionalisation of pay. In 2007, the Social Market Foundation proposed ‘zonal pay’ to reflect the local labour market. Two years later, the Chartered Institute for Personnel & Development and the Public Sector People Managers’ Association argued for a move away from national pay rates.
Even the Conservatives’ call for public sector worker co-operatives has been criticised as a backdoor way of getting rid of national pay deals.
But is such drastic action needed? Many organisations argue that the existing mish-mash of allowances and weightings do give employers scope to reflect local conditions.
Geoff Winnard, head of Agenda for Change/Non-Medical Pay at NHS Employers, says: ‘The Agenda for Change pay system provides local employers with the flexibility to design local roles and a fair and transparent way to value them. There is extra pay for staff working in London by up to 20% of basic salary. Employers can also increase salaries by up to 30% for hard-to-fill posts, utilising local recruitment and retention premia. This provides sufficient flexibility while keeping within a framework which delivers equality of pay across professions and work groups.’
Local authority employers have a nationally negotiated framework, but considerable flexibility within it. Jon Sutcliffe, principal strategic adviser at Local Government Employers, says the pay increase is negotiated nationally each year but individual councils can pay wages that reflect local conditions. This has led to salary differences of up to 20% between regions. Some groups are exempt from this and governed by national pay review bodies – crucially teachers and, in future, school support staff.
But this ‘muddle through’ approach can have consequences. Some money seeps outside the system. For example, hospitals get a ‘market forces factor’ in the national tariff to reflect local labour market conditions – but some of this money might end up paying for expensive agency nurses to fill gaps, rather than boosting the pay of existing staff.
Wolf argues that the inability to decide pay at very local levels can disadvantage ‘tough’ schools, which can’t attract excellent staff by offering them extra pay. Teachers will choose to work in the less demanding neighbourhood nearby where pay rates are the same. She suggests that this could undermine Conservative and Liberal Democrat proposals to give extra funding to tough schools, as they won’t have the freedom to spend the money on what really matters – increasing pay to attract quality teachers.
Where opportunities to diverge from national pay structures have existed, organisations have not made much use of them. Just one foundation trust has gone down the path of local pay, with limited success. Southend University Hospital NHS Foundation Trust has had its own pay rates and conditions for the majority of staff for several years but these are not significantly different from the nationally agreed Agenda for Change rates. The trust has paid staff a small bonus in the past but is now facing opposition. Unions say its current offer for 2010/11 is less than the AfC increase: Unison might advise staff to opt back into the AfC.
Forty-four councils, mainly in the South and East (and including county councils such as Kent and Surrey), chose to develop their own pay scales, in most cases when the national system was more rigid.
Several universities are also considering adopting local pay, following South Bank University’s refusal to pay a 0.5% national pay increase for academic staff, according to the Times Higher Education Supplement. Vice-chancellor Martin Earwicker reportedly said: ‘I think we could get to where we want to go more easily with local bargaining.’
With some public sector staff about to get pay rises that were agreed long before the recession hit, more organisations might be tempted. As well as the AfC, which will give NHS staff, 2.25% from April, teachers are due to receive 2.3%. But local government staff are not being offered a rise and some groups – top civil servants, judges and top NHS managers – have had their pay frozen for 2010/11.
Wolf says it’s very hard to be a pioneer. Although she believes that wholesale movements to local pay are unlikely in the short term, she suggests that if enough organisations turn away from national deals, a tipping point could be reached.
But the challenges in the short term are significant, partly because there are transaction costs to negotiating local pay and conditions. Public sector unions argue that this would be a ‘bureaucratic nightmare’, which would then have to be replicated in every organisation.
However, the IFS Green Budget used information on labour rates in the private and public sectors for each region, which could be a starting point. Surrey County Council opted out more than a decade ago and has local pay rise negotiations each year. The council’s deputy head of human resources and organisational development, Matthew Baker, says it can be quicker than national negotiations. Surrey is currently proposing a two-year pay freeze, and no incremental increase for 2010/11.
A greater fear among public sector organisations might be of losing staff to employers who pay more. Geography will play a part in this. Workers in Cornwall will have fewer opportunities to seek similar jobs nearby than workers in, say, parts of Manchester. Organisations that sit just outside an existing boundary, such as for London weighting, frequently complain it is hard to recruit as people are willing to travel over the boundary for the extra money.
Many of the councils that negotiate locally did so for this reason. Surrey, for example, found it difficult to recruit and retain staff who could easily work for outer London boroughs. Baker says local deals allow it to pay more to attract staff to particularly difficult posts, such as for social workers in some parts of the county.
So far, local pay in the public sector has used the national pay structure as a floor; employers are usually looking to offer something extra to attract or retain workers. It’s generally been introduced in the ‘good times’ when staff are hard to find and public sector wages may lag behind those in the private sector.
But could local pay be used to effectively reduce pay levels in areas of lower living costs at a time of financial stringency? Such moves might make it harder to persuade public sector workers to move to the North (no one likes a pay cut even if a lower cost of living compensates for it). And it might reduce the comparative status and attractiveness of public sector jobs in these areas. It would certainly ignite the unions and possibly lead to industrial action.
A selective pay freeze would seem to be the most humane way of reducing some of the discrepancies between public and private pay, but would take years to have any significant impact. And, as the private sector comes out of recession and wages rise, it could mean holding public sector pay down and risking recruitment difficulties.
Many public sector employers might feel it is not worth the risk.
4 March 2010
Supporters of national pay bargaining say it ensures fair and equal wages across the UK. But critics are squaring up, arguing that it distorts the labour market and fails to recognise cost of living differences. Alison Moore reports
Fancy a job as a staff nurse in Tyne and Wear? On a salary close to £27,000, you could be close to affording a home of your own, as the average house price in the region is just above £100,000.
But it is a different story in the south of England. A staff nurse working here would be on the same salary but would struggle to get on the housing ladder, with a typical house costing upwards of £250,000.
Such contrasts are leading to calls for public sector pay to reflect the cost of living and the labour market in each locality. For example, Alison Wolf, professor of public sector management at King’s College, London, recently called for national pay bargaining to be scrapped. She argues that it distorts the labour market, by pushing up private sector pay to unaffordable levels in the North and disadvantaging many deprived – but relatively high-cost – areas, which struggle to get good public sector staff.
It also means that in the bad times public sector organisations can reduce their wage bill only by cutting staff numbers. They cannot shave pay instead, as many private sector organisations have done and as the Irish government is doing with its public sector.
The Institute for Fiscal Studies’ recent ‘Green Budget’ found that public sector pay was similar to that for the private sector for equivalent posts in London and the Southeast but substantially higher elsewhere.
The IFS suggested that any pay squeeze for public sector workers could be differentiated by region – effectively bringing down pay over time in areas where the public sector pays better than the private sector.
Other economists and organisations have also called for either abolition of national pay deals or greater regionalisation of pay. In 2007, the Social Market Foundation proposed ‘zonal pay’ to reflect the local labour market. Two years later, the Chartered Institute for Personnel & Development and the Public Sector People Managers’ Association argued for a move away from national pay rates.
Even the Conservatives’ call for public sector worker co-operatives has been criticised as a backdoor way of getting rid of national pay deals.
But is such drastic action needed? Many organisations argue that the existing mish-mash of allowances and weightings do give employers scope to reflect local conditions.
Geoff Winnard, head of Agenda for Change/Non-Medical Pay at NHS Employers, says: ‘The Agenda for Change pay system provides local employers with the flexibility to design local roles and a fair and transparent way to value them. There is extra pay for staff working in London by up to 20% of basic salary. Employers can also increase salaries by up to 30% for hard-to-fill posts, utilising local recruitment and retention premia. This provides sufficient flexibility while keeping within a framework which delivers equality of pay across professions and work groups.’
Local authority employers have a nationally negotiated framework, but considerable flexibility within it. Jon Sutcliffe, principal strategic adviser at Local Government Employers, says the pay increase is negotiated nationally each year but individual councils can pay wages that reflect local conditions. This has led to salary differences of up to 20% between regions. Some groups are exempt from this and governed by national pay review bodies – crucially teachers and, in future, school support staff.
But this ‘muddle through’ approach can have consequences. Some money seeps outside the system. For example, hospitals get a ‘market forces factor’ in the national tariff to reflect local labour market conditions – but some of this money might end up paying for expensive agency nurses to fill gaps, rather than boosting the pay of existing staff.
Wolf argues that the inability to decide pay at very local levels can disadvantage ‘tough’ schools, which can’t attract excellent staff by offering them extra pay. Teachers will choose to work in the less demanding neighbourhood nearby where pay rates are the same. She suggests that this could undermine Conservative and Liberal Democrat proposals to give extra funding to tough schools, as they won’t have the freedom to spend the money on what really matters – increasing pay to attract quality teachers.
Where opportunities to diverge from national pay structures have existed, organisations have not made much use of them. Just one foundation trust has gone down the path of local pay, with limited success. Southend University Hospital NHS Foundation Trust has had its own pay rates and conditions for the majority of staff for several years but these are not significantly different from the nationally agreed Agenda for Change rates. The trust has paid staff a small bonus in the past but is now facing opposition. Unions say its current offer for 2010/11 is less than the AfC increase: Unison might advise staff to opt back into the AfC.
Forty-four councils, mainly in the South and East (and including county councils such as Kent and Surrey), chose to develop their own pay scales, in most cases when the national system was more rigid.
Several universities are also considering adopting local pay, following South Bank University’s refusal to pay a 0.5% national pay increase for academic staff, according to the Times Higher Education Supplement. Vice-chancellor Martin Earwicker reportedly said: ‘I think we could get to where we want to go more easily with local bargaining.’
With some public sector staff about to get pay rises that were agreed long before the recession hit, more organisations might be tempted. As well as the AfC, which will give NHS staff, 2.25% from April, teachers are due to receive 2.3%. But local government staff are not being offered a rise and some groups – top civil servants, judges and top NHS managers – have had their pay frozen for 2010/11.
Wolf says it’s very hard to be a pioneer. Although she believes that wholesale movements to local pay are unlikely in the short term, she suggests that if enough organisations turn away from national deals, a tipping point could be reached.
But the challenges in the short term are significant, partly because there are transaction costs to negotiating local pay and conditions. Public sector unions argue that this would be a ‘bureaucratic nightmare’, which would then have to be replicated in every organisation.
However, the IFS Green Budget used information on labour rates in the private and public sectors for each region, which could be a starting point. Surrey County Council opted out more than a decade ago and has local pay rise negotiations each year. The council’s deputy head of human resources and organisational development, Matthew Baker, says it can be quicker than national negotiations. Surrey is currently proposing a two-year pay freeze, and no incremental increase for 2010/11.
A greater fear among public sector organisations might be of losing staff to employers who pay more. Geography will play a part in this. Workers in Cornwall will have fewer opportunities to seek similar jobs nearby than workers in, say, parts of Manchester. Organisations that sit just outside an existing boundary, such as for London weighting, frequently complain it is hard to recruit as people are willing to travel over the boundary for the extra money.
Many of the councils that negotiate locally did so for this reason. Surrey, for example, found it difficult to recruit and retain staff who could easily work for outer London boroughs. Baker says local deals allow it to pay more to attract staff to particularly difficult posts, such as for social workers in some parts of the county.
So far, local pay in the public sector has used the national pay structure as a floor; employers are usually looking to offer something extra to attract or retain workers. It’s generally been introduced in the ‘good times’ when staff are hard to find and public sector wages may lag behind those in the private sector.
But could local pay be used to effectively reduce pay levels in areas of lower living costs at a time of financial stringency? Such moves might make it harder to persuade public sector workers to move to the North (no one likes a pay cut even if a lower cost of living compensates for it). And it might reduce the comparative status and attractiveness of public sector jobs in these areas. It would certainly ignite the unions and possibly lead to industrial action.
A selective pay freeze would seem to be the most humane way of reducing some of the discrepancies between public and private pay, but would take years to have any significant impact. And, as the private sector comes out of recession and wages rise, it could mean holding public sector pay down and risking recruitment difficulties.
Many public sector employers might feel it is not worth the risk.
