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All public sector employers should adopt pay systems that reflect local labour markets, a Policy Exchange report has said.
The report from the conservative-minded research group also recommended a stronger focus on rewarding employees for individual performance.
This stance is significant because it rejects the halfway house, apparently favoured by Treasury ministers, of national negotiations with trade unions. These talks determine broad regional pay rates for England based on differences in living costs. The document also fleshes out for the first time the detail of what a local pay system might look like.
Written by Ed Holmes and Matthew Oakley, the report suggested that £6.3 billion of public money could be released by bringing the public sector into line with pay rates for comparable jobs in the private sector. It added that these savings should be ring-fenced for local investment in economic growth, and claimed that doing this could create 288,000 new private sector jobs in areas of high unemployment.
The current system of uniform national rates damages public services “because the public sector can struggle to recruit and retain the right staff in high cost areas or areas with significant disadvantages,” said the think tank.This, in turn, has serious effects on the quality of local healthcare and education, it added.
Across the public sector, it said, productivity has been “at best flat” for the last decade, and that because of automatic annual increments, “any link between performance and pay has been all but severed”.
Focusing on how local pay determination would work, the report proposed amending the remit of pay review bodies in two ways. First, “so it includes publishing analysis of the differentials in pay that might be expected in different parts of the country based on local labour markets and living costs.” Second, to include “the requirement to make recommendations for how performance should be benchmarked within organisations” to support performance-related pay decisions.
Anticipating trade union opposition, Policy Exchange said that national rates are also “unfair to public sector workers, because their pay does not deliver the same living standards for the same jobs across the country”. It cited Sweden as a model for the transition from national to local pay determination, and said some Swedish trade unions have supported this shift because it has given more opportunities to increase pay through locally-driven innovation and productivity agreements.
Critics of the report have claimed that the machinery required for local pay would be too bureaucratic and become a drain on resources. However, Charles Cotton, CIPD policy adviser, who attended the report’s launch, disagreed. “This process exists in the private sector and employers do not regard rewarding employee contribution and pay as an admin burden, but as a crucial business process,” he said.
A recent report has highlighted the fact that that people om Merseyside, the area of the country with the highest unemployment, are actually paying the most for their gas and electricity, even more than people in London. Yet the consequence of this report would be a reduction in their wages. This report is an over-simplification and will only result in a worsening of the regional imbalance in our economy.
This is an extrodinary issue for the government to focus on! What national private sector organisations pay regional or local rates and for what reason? Do Tesco pay a check-out person a different hourly rate in different parts of the UK?<br/><br/>For my MSc in HRM in the late 1990's I analysed the (then) Tory governments implementation of local pay initiatives in various NHS organisations. The local pay experiment was an utter disaster. For some Trusts it took over a decade to recover.<br/><br/> the evidence was over-whelming. Most graduate level NHS staff (around 50% of the workforce) That is Band 5 £21K - £27K, and above work in Regional labour markets and can and will be highly mobile. <br/><br/>It is only the lowest paid (£14k - £21K)who are tied into to their local geography and therefore probably wouldnt move if their pay was cut! After all this is about cutting pay and terms and conditions.<br/><br/>In Cornwall and Wales fuel and food prices are higher that say the English Midlands, so do staff in those areas get more pay?<br/><br/>London and Outer-London already get regional pay (London weighting). Should we pay more for rural areas because transport is poor and expensive?<br/><br/>The whole issue is nonsense and a distraction from modernising and improving reward for public servants.<br/><br/>The debate should be about 'total reward' not cutting the pay.
“any link between performance and pay has been all but severed”.<br/><br/>Has there ever been an effective link between pay and performance in anything other rudimentary tasks?<br/><br/>www.mooreds.com/.../550
I am a Public Sector worker in the South West; our local NHS providers are looking at constructing a local pay consortium which would cut our pay, holiday & sickness entitlement - this would be disasterous in my opinion, as although we are reminded time & time again that it is so much more expensive to live in London we do in fact live in one of the areas of the UK where the number of second homes is significantly higher than elsewhere - creating an issue with affordable\available housing, plus the price of houses for the average worker in the area are unobtainable on their CURRENT wage. To decrease this wage after a two year pay freeze is not going to help encourage people to spend more - certainly not if like myself their job is "at risk" due to the white paper & Andrew Lansley's work. These are times of increasing despair for those who believe in the good work of the public sector & its workers & have chosen to work in the sector because of this belief.
Before we start the difficult and resource intensive job of linking pay to performance in the public sector, we are going to need a performance management system which is fit for purpose as well as being: uncomplicated, un-bureaucratic, objective not subjective, conducted correctly by all involved and completely transparent and fair? Is there such a thing? I have researched this within both the public and private sectors and, at the risk of sounding defeatist, I don't think there is!
As with all these types of announcement,I think it sounds a logical idea, why would central London workers be tied to wage rates in Newcastle? One's too high, or the others too low in my opinion. <br/>It will all rest on the implementation and detail though. In which case, on current histroy; it will be an almighty failure. Here's hoping the glass is half-full...
Have your say...<br/>Policy Exchange has a clear political agenda. The public sector does not 'struggle to recruit' at national rates in the South East as there has been a significant reduction in public sector employment with little recruitment. The Treasury agenda is clearly to reduce pay in low cost areas of the country. That is where any recruitment would be damaged and depressed local economies which are heavily relaint on the public sector for employment damaged further. Women's pay would also be hit and the gender pay gap widened by any move to local pay.
Cost of living affects a worker where they live in terms of the cost of housing. Someone may work in a low paid area but live in an area where house prices are high and these may be short distances away. Pay is also affected by shortages, high/low profits and this can vary from company/industry within the same location. Therefore averages will be used which will lead to crude measurements.
National pay rates ‘unfair to public sector workers,’ but reducing public sector workers pay is? I dread to think what cost is attributable to the introduction of Agenda for Change in the NHS. A significant number of public servants are paid well below their counterparts in the private sector. These think tanks must think that all civil servants are paid the same amount at Whitehall Mandarins. The Admin Officer at Jobcentreplus with 20 years experience earning £14K may not be too happy to have a wage decrease just because s/he doesn't work in the SE.
Local pay negotiations seems to work in local government.
Sounds fine if it was along the Swedish model, but I have a fear it woudl go like this in the UK. there would be a pay freeze in areas of high unemployment and poverty and new lower paid contracts would be offered for new recruits, thus compiling poverty in those areas. Its a vicious spiral or race to teh bottom. <br/>It has parallels with the old day hirering of workers at the factory/dock gates with the day rate being set that day according to how many men the forman coudl see waiting desperatly for work. <br/>The Policy Exchange report fools no one despite being dressed up with the phrase “unfair to public sector workers, because their pay does not deliver the same living standards for the same jobs across the country”.