Public inquiry - Who will pay for pay increases

6 Dec 01
Almost two-thirds of public sector organisations fear they will be unable to afford the next round of pay increases, according to Public Finance 's latest survey.

07 December 2001

Public sector unions are about to table their annual pay claim the first negotiating meeting of the local government Joint National Council is due on December 10 and the starting figure is expected to be around 5%, well above inflation. The reports of pay review bodies dealing with nurses, senior civil servants and teachers are due before the end of the year.

Public employers are worried that the chancellor will pass the pay rise burden on to public bodies once more.

This month's survey of finance directors, conducted jointly with Reed Accountancy Personnel, focuses on public sector views of the current round of pay negotiations.

The survey shows that 60% of respondents believe that their sector will struggle to afford financial commitments arising from new deals. The average in the local authority, education and health sectors is even higher at 65%.

Unsurprisingly, it is health service directors who most fear that significant pay increases will not be matched by longer-term budget allocations.

A recent poll by research consultants Incomes Data Services revealed that nurses' pay is expected to rise by more than 3% (the expected average private sector pay increase for 2002).

This, combined with above-inflation increases for doctors, is likely to further strain NHS trust budgets. An extra £1bn for one year only does not cover the spiralling costs of treatments and drugs, let alone wages.

As one finance director says: `People would be keen to pay nurses more in the health service, though this comes down to the government finding more money to pay them with.'

Ian Blades, payroll manager at Lambeth, Southwark and Lewisham Health Authority, argues that financiers will be able to cope with new pay deals, but at a cost. `The knock-on effect will be on health care. They need to find the money from elsewhere,' he says.

In the local authority sector, 64% of directors believe they will struggle to cope with forthcoming pay deals, while just 20% believe they will deal adequately with any increases. Even fewer education finance specialists (13%) are unperturbed.

Possibly as a consequence of increasing financial fears, 50% of respondents also believe that salary budgets should now be ring-fenced. This view is particularly strong in the health sector, with 70% in support.

Just under a third (32%) disagree either strongly or very strongly with the suggestion. One education finance director says that it would lead to some public sector bodies employing staff they don't need just to use up their budget.

Many survey respondents also believe that major changes should be made to the pay bargaining system. Nowhere is this more apparent than in education, although some directors link their particular difficulties to problems facing the entire public sector.

George Sutherland, financial director at the University of Edinburgh, says the current system of negotiation `can never work properly while there continues to be inadequate funding across all sectors.

`The government does not realise the rate of inflation that applies to the pattern of spending. It is not the same as the normal rate of inflation.'

More than two-thirds of directors (68%) also believe that pay negotiations should be more co-ordinated across the public sector. Decision-makers in the emergency services are the most keen (90%), followed by those in local authorities (71%) and health (66%). Only a third of transport and utilities directors, however, favour a collective approach.

Some financiers want salaries to be geographically based. Peter Doble, financial director at Lambeth College, says: `You need more money to attract quality candidates in London. London weighting does not help much.'

Overall, these results suggest growing alarm at the level of government support for public sector pay rises, despite New Labour's acknowledgement of long-term problems in some sectors. Finance directors are expecting few favours and are worried that they may not be able to account for significant changes themselves.


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