PUBLIC SECTOR PAY
Budget 2012: Review to examine local pay in public sector
George Osborne has confirmed that he wants public sector pay to be “more responsive to local pay rates”.
The chancellor also announced that a number of civil service departments that will exit their wage freeze from April 2012 will be able to “introduce more local, market-facing pay reform from this year, following further work with Cabinet Office to develop proposals for local pay, as set out in the pay guidance issued by the Treasury”.
The government has published Treasury evidence to the pay review bodies on the “economic case for reforming public sector pay to better reflect local labour markets”, following the chancellor’s announcement at Autumn Statement 2011.
The review bodies are due to report from July 2012.
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In his Budget statement on 21 March 2012, Osborne said:
“We’re also looking to see whether we can make public sector pay more responsive to local pay rates. It is something the last government introduced into the Court Service. London weighting already exists across the public sector. Indeed, the Opposition have proposed the interesting idea of regional benefit rates. So we should see what we can do to make our public services more responsive, and help our private sector to grow and create jobs in all parts of the country. We’ve asked the independent pay review bodies to look at the issue.
“Today, we publish the evidence that the Treasury are submitting to them. And some departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year.
Extract from Budget 2012 Report
Pages 46-47: Supporting employment
1.242 To reduce barriers to businesses taking on new staff the Government:
“. . . has provided evidence to the pay review bodies on the economic case for reforming public sector pay to better reflect local labour markets, following the announcement at Autumn Statement 2011. The review bodies are due to report from July 2012. In addition, a number of civil service departments that entered the pay freeze in advance of other workforces will exit it from April 2012. These departments will be able to introduce more local, market-facing pay reform from this year, following further work with the Cabinet Office to develop proposals for local pay, as set out in the pay guidance issued by the Treasury.”
Chancellor’s letter to pay review bodies
In his letter to the pay review bodies, dated 20 March 2012, Osborne states:
“I thought that it would also be helpful for the government to provide evidence which sets out the economic case for making public sector pay more responsive to local labour markets.”
He attached a 23-page document - Government Evidence to the Pay Review Bodies: Economic of Local Pay - summarising this work.
Treasury document sets out government case for local pay
The Treasury document sent to the review bodies states that on average public sector workers earn 8% more than “those in similar jobs in the private sector”, but in some regions of the UK this “premia” is as high as 18%:
“There is an estimated pay premium of around 8% for those working in the public sector compared with those in similar jobs in the private sector. However, the level of this premium is not uniform across the UK. Public sector employees in some areas earn considerably more than their private sector counterparts, whereas in other areas public sector pay is more in line with the private sector.”
It suggests that the quality of public services could be improved if public sector pay was more responsive to local labour market conditions:
“The existence of pay premia suggests that the public sector pays more than is necessary to recruit, retain and motivate staff in some areas. This in turn limits the number of jobs that the public sector could support for any given level of spending and diverts resources away from other ways to improve the quality of public services. Furthermore, the evidence suggests that the quality of public services would directly benefit if public sector pay became more responsive to local labour markets.”
The document claims that the existence of this pay premia is a barrier to private sector businesses expanding and taking on more staff:
“In places 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, particularly in some sectors become more competitive and expand.”
There are likely to be differences in pay premia between public sector workforces, who recruit from a variety of different labour markets:
“The evidence suggests that there is scope for public sector pay to become more responsive to local labour markets; individuals in some areas should be paid relatively less in real terms and relatively more in other areas. However, the situation in each workforce is different . . . It is likely that some professions command a higher or lower pay premium in each region, compared to the equivalent private sector job.”
The document warns that changes must be implemented in a manner that is appropriate for each individual workforce.
“Changes to pay systems must therefore be implemented over the medium-term in a way that is appropriate for each workforce. This ensures that the changes have a minimal impact on each workforce and ensures that changes are consistent with the law on equal pay.”
Civil service pay guidance 2012–13, HM Treasury, March 2012
This 23-page document sets out the “process to be followed by all bodies covered by the pay-remit process (main and non-ministerial departments, executive agencies and NDPBs) that entered the pay freeze in 2010-11, when planning annual pay awards to their staff and preparing their pay remits for 2012-13.”
The document states that pay rises will be capped at 1%:
“There will be a limit of 1% on the percentage increase in remuneration cost for staff covered by each departmental remit. All elements which increase pay bill cost must be included, except employer national insurance contributions and employer pension contributions.”
On local pay, the document states:
“The Cabinet Office workforce reform team is working with departments to develop a single agreed view of the market rates for different roles in different locations in the civil service, an agreed metric for determining whether an individual department is paying above the rate for a job role and a model reward strategy to support the development of departmental strategies.
"As with all aspects of pay policy, the government would welcome further discussion, including with trades unions representatives, as departments aim to bring pay more into line with market rates to maximise the efficient use of departmental pay bill expenditure."