20 March 2012

I noted way back in this post in 2009 that the Conservatives were seriously thinking about localised pay (and benefits) and in several posts I have explored the issue, especially the advantage for public sector workers in Cornwall of national pay rates. I have listed those posts at the foot of this one. Now the Tory Libdem government is preparing to implement localised pay in this week’s budget, firstly in the civil service but soon for other public sector workers currently with national pay agreements like teachers and nurses.

Economic efficiency
Public sector workers will have their pay Cornished, that is cut or frozen until it matches local private pay. The justification for this is economic efficiency, a level playing field in pay between the public and private so that one does not artificially out-recruit and out-retain the other. In most of Britain this will mean public sector pay ultimately falling.

8 percent gap?
The advantage of public over private pay averages about 8 percent in terms of hourly pay. This hides variation. The explanation for 8 percent is set out in this ONS study which reaches the figure after taking into account differences in the two sectors such as age and qualifications. That study does have some significant caveats; for example, the ASHE data relates only to employees not to self-employed people and the data is about April which is a time when bonuses in the private sector are not paid, both of which are likely to reduce the gap.

The regional figures for the public and private hourly pay gap in April 2011 are in Table 25.5a here.

Consequences for Cornwall
If public sector pay in Cornwall is cut or stalls to reflect the lower private sector pay, will Cornwall still attract, for example, the best nurses and teachers and administrators to build a career here? Will the landscape attractions of the county and the way of life outmatch the high cost of buying a house here and the increasing cost of petrol and travel to work in a dispersed county with poor public transport on lower pay? I don’t think so. Will teachers and nurses on Cornish pay be able to afford a suitable house and if they can’t will they come here? I think some people here overestimate the comparative attractiveness of Cornwall; there are other places in England as beautiful and with an attractive way of life – and with lower housing costs. Man cannot live on surf and Ozymandias engine houses alone.

Of course occupational pensions, based on career average pay, will depend on people’s pay too so it is not only now that living standards will be affected but in old age too.

Localised public sector pay could turn out to disastrous for Cornwall, adversely affecting the quality and performance of its public sector.

Taking money out of the Cornwall economy
What the Tory Libdems will be doing is taking money out of the Cornwall economy: those Cornished public sector workers will have less to spend and that will not help our county economy. Cornwall GDP is 72 percent of the EU average so for a third time we shall qualify for EU aid (though the GDP figures do not well reflect individual experience but rather the disproportionate number of retired people and the nature of jobs here). I suppose removing the pay advantage of the public sector here might in theory encourage the private to step up its endeavours and be able to recruit the talented more easily. A decade of EU aid appears to have achieved too little economically that is solid and lasting and does taking money out of such an economy make sense? Isn’t there a lively danger of government localisation trapping the people of Cornwall in a longterm low wage economy?

Party politics
I think I should add that regionalising pay and benefits is not a clear-cut party political issue. Labour between 1997 and 2010 considered regionalised pay and writing in the Daily Telegraph this 28 January Liam Byrne, Labour’s shadow for Works and Pensions, argued for a regionalised benefits cap asking, “How can a ‘one-size-fits-all’ cap be fair to working people in both London and Rotherham?” And see this 2006 report that says that “Since at least 2003, Gordon Brown has been toying with the idea of having different regional pay settlements across the UK.”


ONS ASHE data about regional pay Table 25 for April 2011 (Table 25.5a shows that male fulltime gross median hourly pay rates in the south west region were £15.15 in the public sector and £11.50 in the private sector. The mean average figures were £17.41 and £14.04)

Growing number of myths about local pay determination Alastair HATCHETT 17 January 2012

Estimating differences in public and private sector pay Andrew DAMANT and Jamie JENKINS July 2011

Public sector pensions and pay Carl EMMERSON and Wanchao JIN February 2012

Regional pay: Can it work this time?Stephen BEVAN 30 November 2011

Earlier posts

Cutting Cornwall 1 December 2011

Localising benefits 31 July 2010

Tory-Libdems to localise NHS pay in Cornwall 19 July 2010

Vote Tory today, cry tomorrow 1 February 2010

Tories eye benefits and wages in Cornwall 6 September 2009

And see this (‘£7,000 pay gap for Westcountry workers’ in Western Morning News 16 December 2011)

ADDENDUM 23 March 2012: This is the NHS employers organisation submission to the NHS pay review body on market facing pay, March 2012