By Richard Johnstone | 4 September 2012
Introducing local pay into the public sector would free more than £6bn a year that could help create more than a quarter of a million jobs, the Policy Exchange think-tank claimed today.
Its Local pay, local growth report argued that the average public sector worker earns around 7% more than a private sector employee. The difference can be as high as 25% in some parts of the country when pensions are included.The centre-Right think-tank said this had been caused by national pay bargaining, which means public sector workers are mostly paid the same amount regardless of their local economic conditions.
It urged the government to push ahead with plans to introduce ‘market-facing pay’ for local areas, which it said could reduce the public sector wage bill across the UK by £6.3bn.
In last year’s Autumn Statement, Chancellor George Osborne asked the independent pay review bodies to consider how public sector pay ‘could be made more responsive to local labour markets’. He confirmed in this year’s Budget that ‘more local pay’ agreements could be introduced as the two-year public sector pay freeze comes to an end this year.
However, the move has been criticised by trade unions and others. Senior Liberal Democrat MP John Pugh told Public Finance the proposals should be shelved when reports from review bodies are published this autumn.
Policy Exchange called for national settlements to end so local public sector employers could choose systems of pay that reflected local living conditions. They should also be given more freedom to vary pay awards according to the performance of employees.
Policy Exchange’s head of economics and social policy, Matthew Oakley, said the current system of pay and pensions was unfair to public service workers in high-cost areas because their pay could not be increased. It could also damage public services because local schools and hospitals struggled to recruit and retain the right staff in areas where private sector wages were higher.
Oakley said letting local employers negotiate salaries with employees would ‘enable top performing workers to be paid more, increasing productivity and improving public services’.
Savings from any changes could be used to help boost private sector employment in areas of the country worst hit by the recession, he said.
An estimated 288,000 jobs could be created with the money saved, he said, based on the measure of full-time equivalent jobs created that is used to calculate the effectiveness of the Regional Growth Fund.
‘Our proposals would mean that not a single penny would leave poorer regions,’ Oakley added. ‘All the money would be ploughed back into reducing unemployment and boosting growth in the poorest parts of the country.’
Moving to a localised system of pay and pensions would ‘take time’, the report concluded. In the short term, annual increases in pay based on national pay scales should be permanently frozen. Increases should then be based on a system of performance related pay, tailored across different parts of the county to reduce the existing pay differential between public and private sector employees.
However, unions hit out at today’s report, calling it ‘misguided’ and ‘ludicrous’.
Unison general secretary Dave Prentis said that the arguments for local pay were ‘fundamentally flawed, and stab at the heart of hard-earned employment rights’.
The general secretary of the National Association of Schoolmasters/Union of Women Teachers said that the report was ‘based on anecdotal evidence’.
Chris Keates added: ‘What the report conveniently ignores is that national pay frameworks are not just a feature of public services, many private sector companies also use them because they are cost effective and aid recruitment and retention.’
