Government seeks local pay rates in public sector

In March 2012, the British government called for the introduction of local pay rates across much of the public sector, with the aim of making wages ‘better reflect local labour markets’. For almost 10 years, pay rates for workers such as doctors, nurses, teachers, court staff and the armed forces have had to take regional factors into account, but the Conservative-Liberal Democrat coalition government has said that it wants to link rates even more closely to local conditions.

Public sector pay-setting

Pay awards for many public sector workers are set by the government, based on the recommendations of independent pay review bodies (PRBs). PRBs cover groups such as National Health Service (NHS) nursing and other staff (1.45 million employees), school teachers (450,000), NHS doctors and dentists (200,000), the armed forces (200,000) and prison officers (30,000).

Pay for most of the UK’s 440,000 civil servants is set by bargaining at the level of over 200 individual departments, agencies and non-departmental bodies, conducted within the framework of central government guidance and subject to government approval (UK0611029Q).

The PRBs essentially set national pay rates, although since 2003 they have been required to take account of regional and local factors in their recommendations. In cases such pay rates for teachers and prison officers, there is now a degree of regional variation through the use of zonal pay bands. Some civil service bargaining units have also introduced geographical pay zones with differing rates. The process has gone furthest in the courts service, where local pay rates were introduced in 2007 (UK0705019I). This means that employees in London and a number of ‘hot-spots’ elsewhere in the country receive considerably higher pay than most court staff. ‘London weighting’ pay supplements, to reflect the capital’s higher cost of living, are widespread across the public sector.

Making pay responsive to locality

In November 2011, the Conservative-Liberal Democrat coalition government indicated that it wants to go further in introducing local pay-setting in the public sector. This was confirmed by the Chancellor of the Exchequer, George Osborne, in his Budget speech on 21 March 2012. He said that the government is ‘looking to see whether we can make public sector pay more responsive to local pay rates’ and labour markets. The government has asked the PRBs to consider how this can be achieved, and the bodies are due to report on the issue in July 2012.

With regard to the civil service, the government states in its civil service pay guidance for 2012–2013, issued in March, that it is currently drawing up proposals for a ‘more local, market-facing pay reform’. It is working with the various departments to develop ‘a single agreed view of the market rates for different roles in different locations’, along with ‘an agreed metric for determining whether an individual department is paying above the rate for a job role’ and a ‘model reward strategy’.

The case for local pay

The government has provided evidence to the pay review bodies (748Kb PDF) on ‘the economic case for reforming public sector pay to better reflect local labour markets’. It states that there is an average pay premium of 8% for public sector employees compared with those in similar private sector jobs, though this premium varies considerably across the UK. One reason for this geographical variation in pay premiums is that, unlike private sector businesses, there are few mechanisms for public sector pay to respond flexibly to local differences in labour market and price conditions.

The existence of pay premiums ‘suggests that the public sector pays more than is necessary to recruit, retain and motivate staff in some areas’, limiting the number of jobs that the public sector can support for any given level of spending. Further, where private sector firms have to compete for workers with public sector employers offering a large pay premium, the introduction of ‘more local, market-facing pay’ could help private businesses become more competitive and expand.

Union opposition

Public sector trade unions strongly oppose the local pay proposals, which have been announced during a general two-year public sector pay freeze (UK1007019I). For example, the National Union of Teachers (NUT), the largest of the teachers’ unions, has threatened industrial action if the proposals take concrete form.

Trade union concerns were summarised by Brendan Barber, the General Secretary of the Trades Union Congress (TUC). He argued that:

  • local pay ‘risks complex, costly and inefficient pay setting for public sector employers, regional skills shortages as public servants opt to work in areas where pay rates are higher, and a long-term future of pay falling behind for workers outside London and the South East’;
  • public sector workers’ pay rates ‘should be based on their skills and the jobs that they do, not on the areas in which they happen to live and work’;
  • it is the ‘stagnating economy’, rather than public sector pay rates, that is stopping the private sector from creating jobs;
  • lower pay rates would take money out of local economies outside London and the South East.

Mark Carley, IRRU/SPIRE Associates

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