As MPs debate regional pay in the public sector, it is important to appreciate the effect this could also have on the private sector. Local economies, particularly in the North of England, could suffer badly
There are number of different ways that Treasury proposals for regional or local pay in the public sector pay would be bad for people working in the private as well as public sectors.
The New Economics Foundation spent several months conducting extensive economic modelling on the different outcomes of the policy in local and regional economies. Their work showed that it could cost the UK economy as much as £9.7bn each year. At best, it would cost us all £2.7bn every 12 months. This is a risk without gain.
Businesses in regions such as the North East are particularly sensitive to the impact regional pay could have on less prosperous local economies. In October a number of small and medium-sized enterprise owners wrote an open letter urging the Chancellor to reject the plans. They warned ‘this policy risks weakening consumer confidence and demand even further, undermining regional growth and making it harder for the UK economy to get back on its feet'.
Last week, 60 senior academics from universities across the UK wrote to The Times arguing that the policy would increase social and geographical inequalities.
The public and private sectors are more positively intertwined in local and regional economies than many politicians and right-wing think tanks appear to acknowledge. This is also the case within many of the nation’s working households, which has to date been under-explored.
While some may like to give the impression that public and private sector workers occupy entirely separate economic realms, the reality for ordinary people’s lives is quite different. All too often the nurse is married to the electrician. The teacher has a family with the marketing manager. The school cook lives with the taxi driver.
Findings from the Office of National Statistics show millions of UK households rely on at least one public sector wage. ONS analysis from 2011 reveals that nearly half (46%) of households in the UK are in receipt of more than one wage. Of those households, 44% include a public sector worker.
The ONS estimates that a staggering 4.2 million dual-earning households are in receipt of at least one public sector wage. For any MPs reading this, that equates to over 6,400 households per parliamentary constituency.
Cutting the real-terms wages, terms and conditions of public sector workers would put intense pressure on the private sector workers within the same household to make up the real-terms joint income shortfall. Many will find this incredibly challenging, particularly given there are approximately 3 million ‘underemployed’ workers currently trapped in part-time work who are seeking full-time hours of employment.
Where there are couples who both work in the public sector, the impact on their household income will be particularly serious, with little prospect of maintaining their joint income.
This dual-earner effect could be one reason why so many people oppose Treasury proposals for regional or public sector pay. In September, a Survation poll showed that just 19% of voters wanted the government to go ahead with regional or local public sector pay. And 65% want it dropped, including a majority of people who voted Conservative in 2010.
Regional or local pay is a false economy. It is unfair, divisive and would be utterly impractical to implement. As Coalition MPs debate regional and local pay again today, they should reflect on these 4.2 million dual-earning households.
Ministers must recognise that the ripple effect of such a policy would impact well beyond public sector workers in less prosperous regions. Falling living standards for millions of working households, depressed local economies and wider divisions could all be consequences of this policy should it be allowed to proceed.
Neil Foster is the policy and campaigns officer for the Northern TUC. This post first appeared on the TUC's Touchstone Blog
