The real cost of regional public sector pay

Yesterday my Shadow Cabinet Colleague, the Shadow Secretary of State for Government Margaret Curran, and I led a debate in the House of Commons on the Conservative-led government’s plans for regionalising or localising public sector pay.

Current systems for planning and agreeing public sector pay give us a stable national framework with built in flexibility and variation – providing for London weighting and other measures to address issues around local cost of living or recruitment pressures. They have served us well, so why is the government seeking to unpick them?

All the evidence and experience shows that fragmenting pay bargaining results in extra bureaucracy and costs. This was seen with the chaos created by the last Conservative government’s attempt to introduce local pay  into the NHS in the 1990s. It’s also why the vast majority of local authorities opt to negotiate pay settlements at a national level.

Dealing with the deficit does require tough decisions on public sector pay, as well as on tax and other areas of spending. But undermining the work of the Pay Review Bodies and existing arrangements for negotiating and coordinating public sector settlements will make it harder, not easier, to deliver pay restraint and control costs to the taxpayer.

The Chancellor’s absurd justification for dismantling current arrangements is that it could support regional development and “rebalance” the national economy. At a time when the number of jobseekers for each advertised job vacancies is at record levels, how out of touch do you have to be to think that the reason businesses are struggling in some parts of the UK is because nurses and teachers are paid too much?

The independent Chief Economist for Wales is clear: “there is no credible academic evidence or research to indicate that crowding out has been happening”. Paul Callaghan CBE, the Sunderland technology entrepreneur recognised in the Queen’s Birthday Honours for services to the North East, has said that the “freezing of regional public sector pay must reduce demand for local goods and services, further dampening an already depressed economy.”

The real problem facing private sector employers in places like my own constituency in Leeds West is a recession made in Downing Street that, according to the latest report from the ippr, “has hit the North hard, with unemployment rising and business confidence falling”.

These difficulties are made all the more desperate by the government’s short-sighted decision to dispense with policies Labour had developed to support more balanced development around the UK – getting rid of regional ministers, shutting down Regional Development Agencies, and cancelling critical regional investments such as the loan to Sheffield Forgemasters.

Now the government’s only regional policy is lower pay for public sector workers in those areas that are suffering the most from its own economic failures. Analysis by the TUC suggests that depriving the North East of the 1% pay increase planned for next year would take £78 million out of the regional economy. Other regions and nations of the UK could lose even more. It would be laughable if it wasn’t so depressing.

Breaking up national pay systems could exacerbate other inequalities too – for example, jeopardising the progress made in delivering equal pay for women, as NHS employers have warned; or making it harder to recruit school teachers in more socially deprived areas, as the National Governors Association worry.

So the Chancellor’s threat to national pay bargaining seems to have more to do with political posturing than economic efficiency or regional recovery. But it has created huge uncertainty and real worry for people around the country who fear the effects of a policy that could result in an indefinite pay freeze that would further depress local and regional economies.

The millions of workers who are keeping our public services going in these difficult times – most of them women on very modest wages – deserve better than this. And those parts of the country that are struggling with the effects of this recession need an active government strategy to get them growing again, not a policy that would make it even harder to recover.

Trying to make public sector workers in hard hit parts of the country the scapegoats for our economic problems is disreputable, it’s divisive, and it’s a distraction from the task that the government should be focused on: a plan for jobs and growth that can get us all out of the recession they have landed us in.

Rachel Reeves MP is the Shadow Chief Secretary to the Treasury