PUBLIC SECTOR
Research finds no economic case for regional pay plans for public servants – TUC/New Economics Foundation
There is no evidence that the pay of teachers, nurses and dinner ladies is preventing local firms from hiring staff, and government plans to introduce regional pay rates for public servants could cost the economy almost £10 billion a year, according to a report published by the TUC today.
Concerned that the government has yet to undertake any serious evaluation of the economic impact of its proposals for the introduction of local public sector pay, the TUC commissioned the New Economics Foundation (nef) to analyse ministers' proposals. nef’s researchers conducted an in-depth analysis of the arguments put forward by the government and found scant evidence to support its position.
nef also modelled the economic impact and the number of jobs that might be created - or lost - if local pay was introduced for schools, hospitals and other public sector employers.
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To examine the likely economic impact of the government's local pay proposals, nef set out to explore a number of scenarios, ranging from an approach which applies the government’s argument that “crowding out” exists to the opposite end of the spectrum with no crowding out at all. According to the crowding-out hypothesis, since private sector firms have to compete with public sector employers for staff, reducing the so-called public sector pay “premium” would help businesses to become more competitive and to expand.
1. No “crowding out” scenario
This approach assumes that that the government is wrong: there is no “crowding out” of the private sector by public sector pay. nef concludes that with this “worst” case scenario where the pay of millions of public servants who live beyond London and the South East is brought down to private sector levels, as many as 110,000 net jobs could be lost across England and Wales, and the cost to local economies would be a huge £9.7 billion a year.
2. Crowding out scenario
Even on the “best” case scenario for ministers, where nef modelling assumes that the government is right and the pay of public servants is preventing private sector firms from recruiting because they are unable to match public sector salaries, the introduction of local pay rates for public servants would see the creation of a 11,000 net jobs across England and Wales.
Yet this approach would still come at a price and would mean local economies taking a hit to the tune of £2.7 billion a year as civil servants, refuse collectors and other local public sector workers find their spending power further diminished.
A final word
"Quite apart from the huge hit that public sector workers would have to take in their pockets if pay in parts of the UK is held down to 'allow' the private sector to catch up, this report shows that the move would also prove hugely damaging to local economies.
"Despite the concerns being voiced by MPs in the parts of the UK most likely to be affected by the introduction of local pay rates, the government has so far refused to rule out this move that would hit public sector workers and their families - who are already feeling the financial pinch as they suffer the effects of a lengthy pay freeze - very hard.
"We hope that our report - combined with the findings of the three pay review bodies due to report back to the government this week - will prove to be the final nail in the coffin for these discredited proposals." - Brendan Barber, TUC General Secretary.
"The research finds no economic case for regional pay variations. Our research finds the government's proposals are based on flawed assumptions that are not borne out in reality.
"Cutting the wages of public sector workers is a high stakes gamble from which there will be no winners. Even in the very best case where the private sector creates more jobs, the economy would be substantially worse off overall. Proponents of this policy must look again at the potential implications to avoid creating further harm in a fragile economic period.” - Helen Kersley, Head of Valuing What Matters, NEF.
Want to know more?
Title: The Economic Impact of Local and Regional Pay in the Public Sector, by New Economics Foundations on behalf of the TUC
Availability: The report is available for download in PDF format at www.tuc.org.uk/industrial/tuc-21216-f0.cfm.
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For more information about the TUC visit www.tuc.org.uk.