Regional Public Sector Pay Speech


Araith Regional Public Sector Pay – Westminster Hall – Ionawr 10, 2012

Diolch Mr Chope it’s a pleasure to serve under your Chairmanship this morning, and in particular to have the honour of beginning the first Westminster Hall debate of 2012.

Mytopic this morning is one that will increasingly dominate relations between the UK Government and the public sector over the coming year, perhaps even more than the still unsolved dispute over public sector pensions  – that of regional pay.

Back in November, I labelled the Autumn Statement a panic response to worsening economic forecasts, rising unemployment and increased deficit payments.   The Statement included many interventionist measures for which my partyhad been calling, in particular increased capital infrastructure investment.    The signature policy of the statement was the Capital Investment Programme which seems remarkably similar to proposals my party put forward at the last Welsh General Election.   I hope that the 25 billion pounds of funds due to be raised from pension funds over the coming years finds itself being shared equitably across the nations and regions of the State.

However, Contained in the fine print of the Autumn Statement was a deeply worrying request to pay review bodies to investigate how public sector pay can be made, and I quote “more responsive to local markets”, with the aim of reporting in July this year.

Mr Chope, after the flurry of announcements we have heard in the beginning of the Autumn Statement it took a while for the significance of this announcement to sink in.   What the Chancellor was announcing was a wholesale review into the introduction of regional pay in the public sector to be introduced as early as the 2013-14 pay round.

I don’t want to accuse the Chancellor of being deliberately antagonistic, but, as this announcement was made on the eve of the biggest industrial strikes witnessed in the UK since 1926, it smacked of deliberately bad timing.   If the UK Government thinks that their proposals for public sector pensions have got state employees and their representatives worked up, they haven’t seen anything yet.

I fear that as the debate rages over these proposals we are likely to witness increased industrial strife.

After making the announcement in the Autumn Statement, the Chancellor explained that this would be a significant step towards the creation of a more balanced economy in the nations and regions of the State which does not squeeze out the private sector.

The claim is that depressing public sector wages where those are currently higher than the private sector would lead to the brightest and best choosing a private sector career over public service.   It is argued, as I understand it, that this would have the effect of boosting the private sector.

What are the actual intentions of the Treasury.   Are they looking at a system that extends the London weighting or altogether something more far reaching?

The Cabinet Secretary in June 2010 was quoted in the Financial Times as saying that it was the intention of the new UK Government to lower rates of pay in the civil service outside London, this on top of redundancies and a two year pay freeze, with the Autumn Statement further freezing public sector pay at 1% for a further two years.   May I remind Ministers that pay freezes at 1% is essentially a further real terms pay cut for the next two years.

My fear is that these proposals are all about saving costs and therefore I can not see the Treasury topping up payments for public sector workers in more affluent areas or even reallocating resources.  My concern is that the intention of the UK Government is to introduce across the public sector reduced pay in the poorest parts of the state and introducing market conditions into the pay and remuneration of public sector workers.

The Institute for Fiscal Studies reported that the public sector pay bill for 2009 was around 182 billion pounds.   This represents 30%of UK Government expenditure and around 13.1% of UK national income.

However based on the 2010 Comprehensive Spending Review we know that the public wage bill will be significantly reduced by the then projected reduction in 400,000 public sector jobs by 2017.   It would be helpful if the Minister in winding up today can inform us what the savings would be of the new projections of the Office for Budget Responsibility of over 710,000 public sector jobs losses by 2017.

Based on the policy direction of the last UK Government, the Treasury should have the full support of Her Majesty’s Official Opposition.   What strikes me about politics in this place, is that despite the sporadic ‘changing of the guard’ at 10 Downing Street, the more things stay the same.

The last Prime Minister had obviously spent too much time in the Treasury in his previous post, and was an avid exponent of regional pay despite the inevitable negative effect this would have on his country and constituents in Scotland.

Indeed it was the last Labour Government that introduced regional pay for court workers and the prison service.   In the teeth of the opposition of the Trade Union movement over the coming months to these proposals the Treasury will justifiably be able to say that the last Labour Government introduced the principle of differential pay, using the courts service as pathfinders for wider introduction across the whole public sector.

To its credit, he PCS to its credit warned exactly of this during the debate surrounding the proposals for the courts service in 2007.   They said at the time:

There was a need for a pay and regrading review as workers from the magistrates’ courts have recently been brought into the civil service.

But the Department of Constitutional Affairs has gone for the cheapest possible option. If the government brings regional pay in here, it will try to implement it in the rest of the civil service, and then across the public sector.”

I’d be grateful if the Minister in responding to the debate is able to inform the House of what assessment the UK Government have made of the impact of introducing regional pay in the court service on recruitment and quality of service in the South East of England, but more importantly from my constituents perspective – recruitment, performance and morale in those areas where lower rates of pay are offered.   Clearly with the policy in operation across some parts of the public sector the Treasury would have the information at its disposal about the impact of the policy, which begs the question why the Autumn Statement pledged to hold an investigation into this issue.

Without having sight of the Ministers speech I presume his counter argument might include that it is the intention of the UK Government to equalise the standard of living for public sector workers.   The argument might go along the lines that a teacher working in Carlisle has more disposable income than a colleague working in Reading due to the differences in the cost of living – and that this is morally unjustifiable.   Superficially this seems an attractive argument, but it is essentially a policy aimed at a race at the bottom.   I hope the UK Government don’t embark on this sort of divide and rule strategy in playing public sector workers off each other as it has in playing public and private sector workers against each other during the public sector pensions debate.

Because under these proposals, both public and private sector workers in these regions and locations would be losers.   The impact would not be a geographical or sectoral rebalancing of the economy, but a sobering experience for public sector workers already in fear of their jobs, having their pockets picked for pension payments and suffering a prolonged period of wage freezes and real terms cuts.

And that’s before the impact upon the private sector, which is in many places reliant upon the trade generated and the money circulated through the public sector employees.

We have heard a lot since the General Election about the UK Government’s ambition to geographically rebalance the economy.   They have the full support of my party, including the National Insurance holiday proposals for small businesses which show intent despite the evidence showing a lack of success.   The policy indicates that the Treasury at long last realises that countervailing measures are required to address the so called north-south divide.   We will however need a far more comprehensive approach than what we have seen to date.

One of the major criticisms we have had of UK Governments over the last thirty years is that the emphasis has been far too concentrated on one geographical part of the State.   Successive Governments have been guilty of allowing regional and individual wealth polarisation at an incredible rate.   The average GVA per person in inner London is ten times that of workers in the Gwent valleys.   Inner London is the richest part of the European Union, whilst the communities I represent only a few hours down the M4 qualifies for the highest form of European convergence aid.

Such are the imbalances, the British state is now the most unequal of all Member States in the European Union by far.   Considering the reunification legacy of Germany and the historic North – South economic divide of Italy this is quite a damning indictment for all unionist parties.

Far from addressing that record of shame, these proposals will further depress those economies in desperate need of investment.   Its no surprise to anyone the level of fiscal consolidation pursued by the UK Government would hit the poorest part of the state worse.   The statement by the Prime Minister ‘that we are all in this together’ is only rivalled in its degree of preposterousness by the last Prime Ministers assertion when Chancellor, that he would abolish ‘boom and bust’.

My country has the lowest average gross weekly wages in the whole of the UK.   Workers in Wales on average earn around £519.40 compared to £629.10 in the South East of England and £826.40 in London.   Take away the consistency of public sector pay and those discrepancies would be far worse.

It would be indefensible considering that public expenditure levels per head are far higher in London than other parts of the State, for the Treasury to introduce a policy which further exacerbates the wealth divide.

The spending power of people in the poorest parts of the state are obviously far lower and this has an impact upon private sector growth in these areas.   In the communities I represent over 30% of the population work in the public sector, the level of their disposable income directly correlates to cash circulating in the local economy.   The move towards regional pay therefore is deeply worrying as it will institutionalise lower pay in poorer areas, entrenching those deeply socially divisive economic variances which exist within the British State – fundamentally undermining a supposed key objective of the current UK Government.   In fact I can not think of many other policy interventions which would completely undermine attempts at geographically rebalancing the economy.

Returning to some of the arguments used to promote this idea, the notion that depressing public sector pay would lead to the brightest and the best leaving the public sector to generate wealth seems a slightly strange one.   Public sector workers often make a lifetime commitment to joining the profession, and rather than seeking work in the local private sector they are far more likely to seek similar employment in other areas where they would receive a better pay.   This will result in speeding up the brain drain which has caused so much damage to the communities I represent.

There are a number of technical problems with the introduction of regional public sector pay.   One obvious one is how do you calculate the level of pay.   Is the idea is to link with private sector pay?   This would mean the huge disparities in pay in the private sector between different parts of the UK will be replicated in the public sector.   Private sector wages in Wales in general are only half those in London.   Are we seriously saying that a public sector worker in Southwark doing exactly the same job as an individual in Carmarthenshire should be paid twice the rate?

The other issue is how many different regions will there be?   How will boundaries be set?   How often will the pay levels and boundaries be reviewed?

In an unusual sign of activity, the First Minister of Wales announced within hours of the Autumn Statement that, if the UK Treasury introduces this policy, the Welsh Government would seek to assume responsibility for public sector pay.   I remember being interviewed by the BBC outside St Stephens entrance and asked to respond to the comments by the First Minister, that as far as regional pay was concerned, it was and I quote “a code for cutting pay in Wales”.

He went on to say

Ultimately we may have to look at taking over pay and conditions here in Wales.


“It’s not as easy as it sounds. There are real issues in terms of how that’s done.


“But if we’re forced into that situation, better that than have people’s pay cut by the UK Government in London.”

This sort of fighting talk with an alternative course of action is extremely unlike the current Welsh Government.   What we normally get is a pile of hot air based on personality and Labour – Tory tribalism.   But with even the Welsh Government awakening from its slumber, perhaps Ministers here in London should be very wary of the strength of opposition these proposals will generate.

My party did, of course, warn of the possibility of this back door pay cuts through regional pay during the Welsh election campaign last Spring.

Surprisingly our concerns about this were poo-poohed by the Labour Welsh Government Education Minister.

As a Welsh nationalist I of course welcome the statements of the Government of my country that they will look into devolving public sector pay and conditions.   Let’s hope that if the UK Government continues with this policy he matches his words with actions.   My only word of warning would be, how will the Welsh Government, reliant upon block grant funding and paralysed with an inability to raise its own revenue, fund this policy. We will need to have the fair funding which goes along with this – another area where the previous Labour government, with their fascination with the Barnett Formula, were found lacking

The cost of living, particularly housing, for public sector workers in some parts of the UK is clearly a problem.   The chasm between private sector wages and public sector wages in areas such as London is clearly something that needs to be addressed.   That is why my party has previously made the case for a Maximum Wage to tackle the ridiculous earnings and bonuses paid to people in the square mile which does so much to inflate prices for ordinary working people.

Also the introduction of rent caps such as in New York to reduce the housing benefit bill but also ensure that public sector workers aren’t priced out of housing.

Rather than take these sort of bold measures it is seemingly the preference of the UK Government to hammer hard working people in the poorest parts of the State in an attempt to remedy the problems caused by the obsession of successive Westminster Governments with the economic elite here in London.   It’s a policy response based on dealing with the consequence of macro economic policy which has led to such imbalances across the state rather than tackling the causes of those imbalances.

The argument is that through regional pay the differences between publicand private sector pay will disappear.

This is a claim which comes about through looking at problems through the wrong end of the microscope – the same perspective which argued that cutting public sector jobs would lead automatically to their replacement with  private sector jobs – and which has since been proven quite, quite wrong.

In Wales, as in other parts of the UK , there is undoubtedly too small a private sector. Sometimes this is mis-represented as being too large a public sector, but that is not the case.

The private sector in Wales needs to be given encouragement to grow – through tax breaks, government support for specific industries, infrastructure improvements. The sort of intervention which my party has been championing as the response to the economic turmoil of the financial crises of the past four years.

I need not remind you that the Welsh economy, under Plaid Cymru, was growing faster than any other part of the UK when we left office.

Mr Chope, sharp cuts in the pay available to public sector workers would have a hugely negative impact upon their ability to spend in the private sector and probably lead to a vicious downward spiral with job losses in the private sector and then a further downward impact upon public sector pay to again re-align.

The effect of regional pay may well be to institutionalise lower pay and create employment ghettos.

My concern is that, despite these potential problems, the twin siren call of saving money and dismantling the public sector may be too much for the Chancellor to ignore.

Diolch yn fawr.

One Response to “Regional Public Sector Pay Speech” [latest first]

  1. It seems top me that with this proposal, the UK Government have undermined what was the one cogent argument for the continuation of the union – redistribution of wealth through the public sector.

Discussion Area - Submit a comment

Your reply will be moderated and not appear immediately. You can prepare your text in a word processor before pasting it into the box, but formatting such as bold and colour will not appear.