There is great news in the Financial Times this morning (via ConservativeHome):
"The government is to launch a drive for regional pay in the civil service in a move set to antagonise further its directly employed workforce already facing threats to redundancy and pension terms, and a two-year pay freeze for all but the lowest paid."
Jennifer Dunn wrote yesterday about the absolutely fair and necessary changes to bring redundancy terms into line with the private sector. There is no way it represents good value for taxpayers to give civil servants as much as six years pay when they are made redundant.
Moving towards greater regional differentiation of public sector pay would save money in two key ways:
- In poorer regions, staff wouldn't have to be paid excessive salaries. As the Financial Times notes, even an IFS study that adjusts for age and qualifications finds that staff in the public sector are much better paid in poorer regions (and we aren't sure that analysis fairly accounts for skilled tradesmen in the private sector and other factors).
- In richer regions, organisations wouldn't have to hire expensive agency staff unnecessarily. In December, it was reported that the NHS bill for agency staff is up 60 per cent, or £1.3 billion, in just two years. Sometimes agency staff are needed in the short term because permanent staff are absent, due to other unexpected events or to allow for flexibility in the face of an uncertain financial climate. But in the NHS in particular, they are often being used because in richer parts of the country, with higher costs of living, Trusts can't get the staff they need at national pay rates. So they hire agency staff where pay isn't restricted but that comes at much greater cost.
It would also have two important beneficial side effects:
- It would reduce the crowding out of the private sector in poorer regions. In an article for the Economic Research Council's Britain and Overseas Journal, David B. Smith quoted Alan Mitchell of CBI Scotland who said: "To have that much of the economy generated by wealth spending, rather than wealth creating, can’t be good for the Scottish economy in the long term. It has a major effect on the ability of companies to recruit and retain staff. Their margins are tight and they cannot compete in terms of holiday, pensions, child-care and all the other add-ons that the public sector can offer. If we don’t have ambitious small- to medium-size businesses growth, then we aren’t going to develop the economy long term."
- It would improve standards and even save lives in richer areas of the country. With the cost of living much higher in the South East but pay for healthcare staff, for example, not sufficiently different to that in regions where the cost of living is lower standards are compromised. A study for the LSE found that centralised pay bargaining was having a significant effect on heart attack death rates; for a 10 per cent rise in wages outside the health service (a ten per cent richer area) the heart attack death rate went up by 4 to 8 per cent.
All in all, this is very good news. Unfortunately, big unions are extremely attached to centralised pay bargaining. It gives national trade union leaders prestige and importance, which helps them justify their fat pay checks. They may well fight this measure. But, as we've said many times before, we can't let the public services be held to ransom by union dinosaurs.