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Treasury hints at winners and losers under local pay

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Local pay bargaining could raise salaries in some  English “hotspots” but parts of the West Midlands and Yorkshire, Strathclyde and Wales may lose out, Treasury documents suggest.

As expected, chancellor George Osborne announced in today’s budget that local pay would be introduced to some central government departments from this year.

Alongside this, the Treasury has written a document hinting that extra payments could be made to public sector workers in “hotspots” across the country to ensure wages better reflect local labour markets.

It has also set out the areas where wages are much higher than in the private sector.

Speaking in parliament today, Mr Osborne said: “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.

“…And some departments will have the option of moving to more local pay for those civil servants whose pay freezes end this year.”

The NHS pay review body was last year asked to consider whether, and how, NHS pay could be made more “market facing” to create better parity with the private sector. It is due to report to the government in July.

Ahead of this date, a document submitted from the Treasury today to all departmental review bodies provides hints on how the policy may be rolled out.

It says a common approach among retailers is to pay staff according to the “zone” in which they work. For example, inner London salaries are around 16% higher than the base rate and outer London salaries are 10% higher. This is similar to the current arrangement in the NHS.

The document adds: “Zonal pay structures also allow extra payments in particular ‘hotspots’ across the country where there is greater competition for labour. These hotspots tend to cover large towns and cities such as Manchester, Birmingham, Liverpool, Bristol and Edinburgh.”

It also notes that John Lewis – often praised within and beyond the NHS for its staff relations – has its own pay range for each of its stores, based on local unemployment and appraisal scores.

The document provides a Treasury estimate of the “public sector premia”, or how much public sector workers are paid than their private sector counterparts, in a range of sub-regional areas.

Those with the highest “premia” are Yorkshire and the Humber, other than South and West Yorkshire, followed by Strathclyde, Wales and the parts of the West Midlands, other than those in the “metropolitan county”.

An Institute for Fiscal Studies study referenced in the document estimates the South East has the lowest premium at 0.5%, while public sector staff in Wales are paid 18% above those in the private sector.

Estimates are adjusted for factors such as differences in education, age and qualifications.

But the document says “the differences in pay premia within regions can often be greater than the differences between regions”.

Separate figures suggest that Yorkshire and the Humber has the lowest cost of living of any region, while London has the highest.

The document also states that the quality of public services would improve if pay was more responsive to local markets. It points to an academic study that showed centralised regulation of nurses’ pay was linked to extra deaths among patients admitted to hospital following a heart attack.

However, it cites evidence from the IFS showing that public sector professionals outside of the NHS often earn more, in relation to average regional wages, than nurses do.

This also shows that nurses are best off compared with average residents in the South West, Yorkshire, the North East, West and the East Midlands.

Responding to the budget, NHS Employers director Dean Royles said: “A major chunk of every NHS organisation’s budget goes on paybill costs. It is right that we should be constantly looking at solutions to keep pay costs down to help avoid job losses and protect services. 

“Employers will want to ensure any proposal avoids increased administration and recognises the risks of pay inflation within localities.

“Most employers would like a more flexible approach to pay, terms and conditions to be delivered through the development of the national framework, for instance extending supplements based on the location of the organisation.

“Employers are concerned that a crude zonal or regional system would not work effectively across the range of occupations and professions that exist in the NHS.”

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Readers' comments (1)

  • The NHS can look forward to an era of regular local pay disputes and industrial action. Just who is the comparison of rates with - privatised NHS services where the employers have reduced T&C's over time. The idea that some one has produced a correlation (or link?) between death rates and national bargaining is laughable and it should be published without delay!

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