There’s been a big (Twitter) row about the policy of regional pay bargaining, which we detailed at the weekend. It was initially adopted by Liz Truss’ leadership campaign, who now say they won’t take the proposal forward.
Some have claimed the policy is a “massive pay cut” (simply not true); “aims to level down the north” (nope); or involves “cutting public sector jobs” (the research literally makes the opposite point).
So let’s lay out what the policy actually involves.
1. What is regional pay bargaining?
Currently, remuneration for public sector jobs is a complex, and centralised process which takes no account of the differing circumstances across the country.
Determining pay on a more local level would gradually level the playing field and save taxpayers £8.8 billion.
We’re not the first ones talking about this. Previous Labour and Tory governments have wanted to do it, and Policy Exchange produced numbers on it in 2012.
2. What are the benefits?
It would, over time, bring public sector pay more into line with private sector pay.
Currently, the median public sector wage is over 14 per cent higher than the private sector. In regions such as Scotland, this gap was as high as 31 per cent. We estimate the cost of this gap to be about £20 billion.
For example in the North West, public sector pay rose by 2.2% while private sector pay rose by only 0.1%. In London, public sector pay rose by 3.4 per cent, but private sector pay fell 5.7 per cent.
It’s not clear therefore why some places should enjoy large rises in public sector pay, or why those in the public sector should see their pay rises far outpace the local private sector.
Regional pay bargaining would help narrow the gap as pay rises would no longer be uniform across large sections of the public sector.
3. What are the drawbacks?
Given that it would undermine the ability of the trade unions to influence pay via national collective bargaining, they hate the idea and argue there are significant drawbacks.
In certain areas pay would need to be frozen and new entrants start on lower salaries. There wouldn’t be pay cuts, full stop. And the policy would still be more generous to the current workforce than a flat public sector pay freeze.
But when there is no growth expected in the UK economy, it cannot be right for the public sector to continue receiving large uniform pay rises at the expense of lower-paid private sector workers.
4. What’s wrong with the current national pay system?
The current system takes little account of huge regional differences. Some areas of the country have higher costs of living. Others see huge disparities between public and private sector pay rises. Pay must be competitive locally, meaning ignoring these two factors in favour of a one-size-fits-all system is bad for workers and taxpayers.
On the other hand, national pay bargaining is very good for trade unions and preferred by politicians in Whitehall.
5. How have you calculated the figure for potential savings?
Policy Exchange provided a potential savings figure of £6.3 billion in 2012. To update this it was divided by total public sector pay in the relevant year. This creates a saving ratio.
The Office for Budget Responsibility forecasts forward to project public sector pay bills in upcoming years. We applied the saving ratio mentioned above to the projected pay bills to calculate a potential saving.
We have also discounted the potential savings each year if the government wanted to gradually phase in regional variation. This would provide time for the changes to filter through into pay bills. If done at 20% a year, then the policy would bear full fruit after five years.
6. Who would the policy cover?
The policy proposal relates to all public sector employment. We don't have figures for what the savings would be if it were implemented specifically for the civil service.
7. Wouldn’t workers outside of London be paid less for the exact same job?
Let's not forget that those working in London already receive a premium for doing so. This means that they already get paid more for doing the exact same job because the government recognises a higher cost of living for those in London. So why is London a special case?
This policy comes alongside a much larger commitment to move civil servants out of London.
After all, if they are doing the exact same job, why is that job based in London? Where possible those jobs should be in other regions of the UK other than the capital, where it is most expensive.
8. How many civil servants would be moved out of London?
It should be many more than are currently planned.
Exact numbers depend on the objective of the government. If they wanted to move all civil servants out of London then they could save almost £300 million by moving them to the South West, the second highest paying region, or £450 million in the lowest paying region, the North East.
The government could also try to equalise how many civil servants are in each region of the UK. In this case, each region would have around 38,590 civil servants, a reduction of 61,700 from the current level in London.
9. How would you level the playing field between the public and private sector?
By freezing pay in regions with lower private sector pay rises and increasing it in places with higher private sector pay, this will enable the private sector to catch up with public sector salaries.
Meanwhile, the public sector will be unleashed to compete on pay with the private sector, thereby reducing the reliance on expensive agency staff.
Public sector pay simply cannot continue to outstrip local private sector pay rates.
10. How does this affect ‘levelling up’?
Levelling up isn’t just about public sector funding, but private sector investment and employment.
This isn’t helped when public sector employers dominate local job markets due to national pay rates set in Whitehall. More fairness in local pay rates would enable the private sector to compete for jobseekers, which will then encourage them to invest and ‘level up’ those parts of the country which need it most.
Similar to the government's free ports to encourage private sector hubs of investment, this will be another incentive for the private sector to move activity to new regions.