With the ink on Whitehall’s new entente cordiale barely dry, the new coalition government has wasted little time in setting out its stall for the years ahead.
Among the batch of favourable headlines in the Sunday papers was news of the appointment of Will Hutton, a former editor of The Observer and left of centre commentator of some renown, to head a commission on ‘fair pay in the public sector’. Quite what this means in practice only time will tell, but Hutton’s Commission – due to report in December – is expected to work towards establishing a ratio of no more than 20 to 1 between the highest and lowest paid.
Hutton, who will continue in post as executive director of the Work Foundation, said that the review would examine how to reduce the pay gap in the public sector. ‘It will also address the level of remuneration needed to retain, attract and motivate staff of the quality required – especially given what is happening to private sector pay, and the extent to which distortions and market failures in private sector pay create pressure for unfair pay multiples in the public sector,’ he said. ‘The review will include staff covered by the senior salaries review body, non-departmental bodies and managers in local government and the NHS.’
It is hardly groundbreaking for new governments to start reviews and appoint external figures to lead them – remember Gordon Brown’s initial success in appointing outsiders to his government in the early days of his premiership?
But Hutton’s brief is far from easy. It’s not yet clear how many in Whitehall, quangoland, the health service and local government will be affected. Nor is it obvious how far bonuses, pay and pension arrangements will be taken into account.
And as Public Finance reported earlier this month, surveys by Income Data Services and the Labour Research Department suggest that private sector pay is beginning to rise. Public sector unions such as the PCS – no shrinking violets they – are likely to be vocal in their opposition to pay cuts at a time of rising inflation and rising pay in the private sector. Especially when, as Polly Toynbee points out in today’s Guardian, most public sector employees are by a long way paid less than those in the private sector.
Yet this is a timely initiative. It is entirely right for the new government to seek to bring control to senior public sector pay. Over the past few years, a ‘bidding-war’ has taken place between public sector organisations and this has led to rampant pay increases at senior levels. This situation has been exacerbated by an increased number of private sector employees moving into roles in finance, HR and IT in particular.
Top of Hutton's agenda should be establishing a clear cap across the public sector, as well as extending his remit to cover quangos. He and his colleagues also need to identify an acceptable level of lowest pay; ratios work bottom-up, as well as top-down.
Hutton’s review is also likely to prompt a wider debate around the employee offer for those working in the public sector. Those who possess skills that could be used by private sector organisations, and who are working in difficult and demanding jobs, may find themselves questioning the value of staying in post at a time of pay restraint, reduced pension entitlements and what is likely to be a difficult and challenging environment for the next few years. To avoid an exodus of talented people to the private sector, government needs to consider what will attract and retain people to serve in these important roles.
For the time being at least, the public sector is going to have to adapt to a clunky transition as senior jobs will be advertised at lower levels of pay. It’s no coincidence that the position of chief executive of the Audit Commission has remained unfilled when the advertised rate of pay is lower than that of many chief executives of local authorities.
As the coalition government settles down to work, challenges abound across Whitehall and the wider public sector. But whatever ministers decide to do during their term in government, they will rely on public servants to implement their decisions. Maintaining a motivated and dedicated workforce will be a crucial factor in the months and years ahead.
John Marsh is a director at Ernst & Young and a former head of HR at the Home Office
