Local pay for the public sector: a row the Lib Dems and the Coalition will want to dodge?

by Stephen Tall on June 10, 2012

The Huffington Post published an excellent dissection of the twists and turns the debate on local pay for public sector workers (sometimes called regional pay) is taking within the Lib Dems:

Letters written by the Lib Dem Chief Secretary to the Treasury Danny Alexander [suggest] the number two minister at the Treasury appeared wildly enthusiastic about civil servants being paid different amounts depending on where they work as recently as the start of this year.

But subsequent letters show Alexander softening his stance, suggesting he’s come under pressure from fellow Lib Dems over the proposals, confirmed by George Osborne in the 2012 Budget. The Chancellor announced he was looking at local pay variations for civil servants working at the Department for Transport, The Department for Work and Pensions and the Home Office.

Here are screen-grabs of those two letters. This is the first, written in January 2012, with the part circled showing Danny Alexander saying ‘I am keen to see local, market-facing pay introduced across the UK’:

And here’s the second, written in April 2012, with the circled quote showing some dilution of enthusiasm, with Danny saying only ‘I believe there may be benefits to local areas across the UK of more local, market-facing public sector pay.’:

What affected Danny’s enthusiasm for the policy between January and April?

Most likely it is the hostility among many Lib Dems to the policy: from the party leader, Nick Clegg, to many of the party’s MPs, as well as Peter Black AM here on LDV.

Does that mean local pay is dead? Not necessarily. To understand why, it’s important to appreciate the subtle but crucial distinction between regional public sector pay (which implies a set, flat rate across a region) and local public sector pay (which distinguishes between, for example, easy-to-recruit-to suburbs and vacancy-riven inner-cities within a region). Back to the HuffPo article again:

Number 10 says the discussions going on at the Treasury are about local pay, not regional pay. There would be pay zones set up, but they wouldn’t carve the country up into distinct regions. Instead areas would be allocated a pay-zone, which would translate into quite a patchy map of England and Wales.

What the government appears to be looking at is a system where someone in an outlying area might get paid less than someone working in an inner-city area. The Birmingham Post suggested this would mean someone working in the public sector in Dudley eventually earning less than in Birmingham.

This model already exists at the Ministry of Justice, which adopted local pay variations for the Courts Service in 2007. Those changes saw, for example, Manchester and Portsmouth put into the same pay bracket for courts staff.

So although it doesn’t seem like it on first reading, actually Clegg and Alexander are not contradicting each other. That doesn’t mean there isn’t a problem within the Lib Dems over this, though. … These comments [from the Guardian letter, linked above] are almost identical in tone to the arguments being made by the unions, who oppose any form of pay variation – local, regional, whatever. And if you look at the Lib Dems who signed that letter (Lorely Burt in Solihull, Andrew George and Stephen Gilbert in Cornwall), it’s clear that people in their seats would be the sorts of people to see a pay freeze under any local pay variation.

The row will come to a head next month, when the independent pay review body will report back to the government on whether local pay could work in other departments, in a similar fashion to the courts service.

There is a further example of local public sector pay already taking place — as set out in the Coalition Agreement — to add to the example of the Courts Service:

We will reform the existing rigid national pay and conditions rules to give schools greater freedoms to pay good teachers more and deal with poor performance.

I’ve previously nailed my colours to the mast on this issue — Time for the Lib Dems to blow the final whistle on national wage settlements — advocating local pay which recognises the different market conditions that prevail when recruiting to vital public sector jobs:

Unsurprisingly, recruitment and retention rates in the most deprived parts of the country are well below those of the more affluent. Under normal market conditions, this would be reflected in the pay and conditions: tougher work would be better rewarded. In this country, we hope that our public sector ethos will somehow make up the difference, that there will be enough local heroes willing to undertake more demanding jobs for no extra remuneration. The evidence shows that such hope is as forlorn in reality as it sounds in theory.

However, I am almost certainly in a minority in the Lib Dems. And even though Danny Alexander’s letter makes clear that there would be no reduction in the overall public sector pay bill as a result of local pay — there would simply be a gradual rebalancing over time to reflect the local job market within a region — it would inevitably be a controversial move among those who would lose out relative to those public sector ‘winners’ whose pay will rise. Put bluntly, those who stand to lose are more likely to shout louder than those who stand to gain: it’s classic loss aversion, and there are few more averse to lost popularity than politicians.

After a month of budget U-turns, the question has to be asked not only if Nick Clegg and Danny Alexander are willing to try and sell local pay to their party, but also if the Coalition Government is really up for this fight?

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and also writes at his own site, The Collected Stephen Tall.