What’s wrong with regional pay?

Posted in Blog | Mar 19, 2012 | By: Victoria Winckler

“Regional pay” threatens to be another blow to Wales’s public sector workers, following a pay freeze, cuts in spending and threats to pensions. It could also affect public sector workers’ families and the economies of towns and cities across Wales.

The idea of “regional” or even “local” pay is riddled with problems.

The biggest problem of all is the assumption that public sector workers are paid more than private sector workers. We will have to see what new evidence the Treasury produces to substantiate its claims that the differential in Wales is as much as 18%. But Welsh Government evidence from 2007 clearly showed that full-time employees in the public sector with qualifications below degree-level are paid the same as, or less than, their counterparts in the private sector. Indeed, public sector full-time workers with no qualifications on average  earn £20 a week less than in the private sector.  Only public sector full-time workers with degrees have higher earnings (on average £60 a week) than the private sector.

There are problems with the “regional” idea too.  There are undoubtedly differences in earnings between different parts of the UK, but the difference is mainly between London and the South East and the rest of the UK – there is relatively little difference between different parts of the UK. The Welsh Government’s latest statistical bulletin on earnings shows that Wales has the lowest average weekly earnings of all nations and regions at just £519.40.  Earnings in the highest paid area outside the south-east, the East region, are £579.90. However average weekly earnings in London are a whopping £826.40 and in the south-east £629.10.

There is already substantial flexibility within nationally-negotiated pay systems.  As well as various enhancements for high-pay regions, such as London weightings, most occupational groups have some pay delegation, which allows flexibility to meet local conditions.  Be it the civil service, police officers, teachers or midwives, there is potential for employers to reflect local labour market conditions.  Indeed, it’s interesting that most UK-wide private sector employers have retained national pay frameworks with relatively limited local variations, because they offer simplicity and transparency as well as the responsiveness employers want.

The introduction of regional pay could be highly damaging to workers and communities in Wales.  Constraining public sector workers’ pay in the absence of evidence that they are “over-paid” relative to the private sector will be highly damaging for those workers and their families, not least as many public sector workers are already low paid.  There would also be an impact on the local economy, with every two public sector jobs estimated to generate a further job – reducing pay levels would have a significant impact on total employment especially in places with relatively high proportions of public sector employment. It’s hard to see what the private sector in Wales would gain – there is no shortage of employees of all levels in Wales and only amongst the most highly qualified is there any suggestion that the public sector offers a pay premium.

The detail of the Chancellor’s proposal remains to be seen, but it looks to be bad news for public sector workers and everyone in Wales.

Victoria Winckler is Director of the Bevan Foundation and author of a report Regional Pay, Regional Poverty (2004)