National pay to stay

20 June 2012

Currently public sector pay is negotiated nationally, with all civil servants in a given job receiving the same pay regardless of location. There are (or rather were) plans to be set regionally, which while justifiable, are certainly not popular. There are certainly plenty of good reasons to have national pay awards, one of them being that the value of a given job should be uniform regardless of location, which in turn allows much freer movement of people within a system. In practice it means public sector workers are paid London salaries regardless of location, leading to serious distortions of the job-market.

Wales is a good illustration of what national pay results in. Aside from some blatant piss-takes, private sector gross salaries take some account of local costs of living, the idea being that it is uniform spending power that employees are interested in. With localised private sector pay awards but national public sector pay awards, average public sector pay in Wales is 18% above that of the private sector. This is a sure-fire guarantee that the Welsh private sector remains small, and a similar story is repeated across northern England as well.

The train-wreck comes when the private enterprise mentality of maximum returns from minimum outlays hit the employee mentality of wanting the same pay as their peers. With a 10-20% bonus the public sector is guaranteed to cream off all the best people, but for arguments sake I will assume that private salaries need to match public salaries. From the company perspective, this means that the cost of locating in Wales or Bradford is the same as locating in London or Hertfordshire. And it is a no-brainer: Wales and Bradford don't stand a chance.

With no employee costs to differentiate between locations, it is other factors that come into play, and the major one is target market. If most clients are in London, then locating 150+ miles away is a recipe for higher logistical (especially travel) costs, even if it is not strategic suicide in terms of winning contracts. Before long you end up with a situation where the private sector only even considers the regions if they get grants & tax breaks, and then you are up to your neck in corporate welfare.

The fundamental problem with introducing regional pay awards is that for it to be meaningful, the relative level of public sector pay has to come down one way or another. Unions will obviously spin it using terms such as slashing and race to bottom, which is hard to counter given that the whole regional pay plan is primarily driven by deficit reduction. Regardless of intention, it is not good news for any coalition MPs who represent seats with large numbers of overpaidessential public sector workers.