Matthew Sinclair argues against national pay deals while Stefan Stern says regional approach is fraught with problems
Matthew Sinclair, director of the Taxpayers' Alliance
Ending centralised pay bargaining would mean better value for taxpayers, better services for those who rely on them, and a fairer deal for public sector workers overall.
The Office for National Statistics has estimated that, after accounting for "differences in the types of job and characteristics of employees", public sector pay is 7.8% higher than private sector pay. The Institute for Fiscal Studies has put the public sector pay premium at 8.3% across the country. But that conceals huge regional variations, with "no evidence of a premium in the south-east of England, while in Wales the estimated premium is 18% for men and 18.5% for women."
Such a generous premium in some areas is clearly a bad deal for taxpayers. It is also extremely harmful for the economies in the lower-cost, lower-income regions as local companies can't compete with the generous national public sector pay deals to get the right staff. Over time that means an anaemic private sector and an increasing dependence on public spending.
National pay deals can create even more dramatic harms in the higher-cost, higher-income regions. Research by the Centre for Economics at the London School of Economics has found that national pay deals can mean worse public services. They tested the hypothesis that in areas with higher incomes outside the NHS, hospitals "suffer from problems of recruiting, retaining and motivating high quality workers. A 10% increase in the outside wage is associated with a 4% to 8% increase in [heart attack] death rates". Pay regulation can kill. Regional public-sector pay deals would also be fairer to the workers.
There is no reason workers in some regions should get an arbitrary windfall, and others unnecessary hardship, simply because of the quirks of national pay bargaining.
Stefan Stern, visiting professor of management practice at Cass Business School, London
Can a "one nation" party support regional pay differentials in the public sector? The chancellor would probably say that it can – just because it is called the "National Health Service" doesn't mean that people doing the same job in different parts of the country should receive the same pay.
In making this case the government might point to parts of the private sector where pay varies according to region. Greggs the bakers, for example, uses top-up "location allowances" of 25 and 50p an hour, which it targets on difficult recruiting areas, according to Incomes Data Services, the research company.
There are a lot of potential problems here. Unions and employers have traditionally reached national pay deals for a reason. They are the "least worst option" from everybody's point of view.
What signal would a relative lowering of public sector pay send to people in the regions? That their work was worth less? And how would private sector employers react? Would they discover new depths of generosity and decide to boost the pay they offer? Or would they rather feel that the local market rate was now falling, and that they too could hold down pay? The sluggish UK economy needs more demand, not less. It is hard to see how paying people less will encourage growth.
As the Harvard philosopher Michael Sandel writes in the April issue of The Atlantic: "A market economy is a tool – a valuable and effective tool – for organising productive activity. A market society is a way of life in which market values seep into every aspect of human endeavour."
If we really are "all in this together" we probably need more rather than fewer national benchmarks. Artificial competition and destructive "market forces" should probably be kept out of national pay deals.