Should a nurse in Morecombe be paid the same as one in Manchester? Should a policeman in London get paid only slightly more than one in Lancashire? Potentially one of the biggest announcements that came out of the Chancellor’s Autumn Statement was the review of national wage bargaining. Amidst all the doom-mongering, there was little discussion of this new proposal, other than to note the outrage of the unions. Obviously we don’t know what the review will recommend, or whether the government will implement its conclusions. But the effects of dismantling national wage bargaining are potentially very far-reaching (and were explored some time back by my old think tank, Policy Exchange).
About 80% of public sector workers are covered by national wage agreements. This means that roughly one in five employees in the UK have their pay set without regard to local labour market conditions, but rather as a result of what the government decides to pay across the country. That might not matter if the UK had a single labour market, but we don’t – it is a myriad of interconnected markets, with some areas of the UK having labour shortages, and some suffering very high unemployment. The private sector adjusts to that by varying wages to ensure supply and demand are better matched – in 2009, the median weekly wage was £436 in the North East, and £627 in London, a difference of 44%. Strip public sector jobs out of that, and the difference would be even greater. Public sector workers in London do normally get a London weighting uplift, but it doesn’t match the normal income premium for working in London.
With private sector wages varying considerably by region, and public sector wages being pretty much invariable, there are huge regional differentials between the attractiveness of working in the private and public sector. Working in the public sector might seem decidedly cosy in some places, and much less so in others. Teachers in London earn just 18% more than the local median wage, while those in the North East earn 79% more. The result is that in some parts of the country, the public sector workers are far better paid than their private sector equivalents, making it difficult for private sector employers to compete for employees. This can crowd out private enterprise, which leads to some parts of the country being totally dominated by the state. In higher wage areas, the effect works in reverse, with public sector workers being comparatively poorly paid compared to their private sector equivalents. This can make it difficult for public employers, such as schools and hospitals, to hire and retain staff in high wage areas, which in turn leads to higher vacancy and turnover rates (and thus to poorer public services). There are other effects – national pay scales can make it difficult to recruit public workers for high deprivation areas, where working can be much more demanding, but the wages the same.
Whatever the unions claim, many workers – those in expensive or very deprived areas – will probably benefit if national pay bargaining is scrapped, and public pay rates reflect local conditions. The union barons will never admit it, but much of their opposition is based on the fact that scrapping national pay bargaining deprives them of their pivotal national role. They can hardly call a national strike over local pay disputes, which will rarely make national newspaper headlines.
But whatever the outcome of the review, it is clear that national wage bargaining is already starting to fray at the edges. The government’s reforms in education and health – in particular the expansion of academies, the creation of free schools and the moves to GP fund-holding – all give greater local discretion to the setting of pay and conditions. One way or another, it seems unlikely that national pay bargaining will have the same importance in the future as it had in the past.