Another public sector pay freeze or, for many, a continuation of the last one...

This week’s briefing that another public sector pay freeze is under consideration is going to prove to be a serious blow to morale. And yes, I get that, as a Government, you feel that you want to be setting an example for the rest of the economy. But, as I’ve noted in the past, the cost of bad governance far exceeds the price you pay to attract and retain quality staff.

Yes, the economy is going to take a hit, but it is already evident that, especially in more technical areas of the Civil Service, we just aren’t competitive in terms of pay and conditions, even allowing for an increasingly non-gold plated pension scheme. And recruiting people to fill the gaps left by people who you recently recruited and couldn’t retain is a very expensive thing to do - the initial cost of training and low productivity in the early years of employment is thus repeated over and over again.

And the comparison between earnings of public and private sector employees is increasingly distorted by the fact that most low-paid public sector employees have either been made superfluous by technology, or contracted out to the private sector. Thus, the average increases whilst the rate of individual pay falls in real terms.

And, at the same time, whilst Ministers bewail the fact that civil servants are less innovative, they entirely overlook the point that the mid-range civil servant is earning 15% less in real terms than he or she did a decade ago, and thus the temptation to seek pastures new is that much greater for the ambitious and those whose skills are in demand in the private sector. You can’t, as Margaret Thatcher said, buck the market.

I’m a minor bureaucrat in a technical field somewhat sought after in the outside world, and I know that my equivalent in the private sector is earning considerably more than I am. Luckily for everyone concerned, I’m nearer the end of my career than the beginning, I’m mortgage free and have no big financial commitments. In short, finances are not particularly pressing.

Now look at it from the perspective of a colleague in their mid-twenties. They’ve probably got student loans to pay off, they would like to find somewhere to settle down, someone to settle down with, and might want to raise a family. They have a choice - earn a salary which isn’t competitive, is becoming less so each year, and will possibly never allow them to have the sort of life we are encouraged to aspire to, or work in the private sector, with an element of vulnerability, but with enough extra income to probably have a decent lifestyle. It isn’t a difficult choice, when you think about it.

It is a difficult choice if you’re trying to run an efficient organisation, a Brilliant Civil Service, if you will. If you can’t recruit and retain the best and the brightest, you limit the aspirations you might have. You need to reduce the scope for error by process-mapping decision making because those who might be able to apply legislation imaginatively but properly are less likely to be a part of your workforce. You end up with “the computer says no” administration - unimaginative, unable to innovate, likely to make choices which are legally sound but contrary to Parliamentary intent.

And that’s how you end up with Windrush, the Grenfell Tower, Baby P. Everyone did what they were required to do, yet the outcomes were catastrophic. Nobody was able, or willing, to say, “hang on, if we do this, the consequences might be injurious, and this is why.”, and be taken seriously.

At the other end of the organisation, a lot of older colleagues have strained sinews during the pandemic, keeping the show on the road, enabling the Government to support the economy. The sense of gratitude engendered by then cutting their pay (again) might be difficult to locate, and given that it will impact negatively on their eventual pension too, they may (will, in truth) decide to retire earlier than might otherwise have been the case. I’ve got colleagues who retired with a pension representing 50% of their then salary who are now catching me up year on year in actual terms, not just real ones. It doesn’t go unnoticed...

So, if there are any Government ministers reading this (admittedly highly unlikely), might I politely suggest that you think long and hard before freezing public sector pay again, and not just about the short term impact. And, if you think it’s the right, or only, thing to do, then go ahead. But don’t then complain about the quality of the advice you get or of the implementation of your policies - there is a correlation between the value you place upon something and what you’re willing to pay for it.

200,000 public sector workers to be on the National Living Wage by 2020...

That's the answer given by Lord O'Neill of Gatley in answer to a written question from Ros this afternoon.

Question:

To ask Her Majesty’s Government what is their estimate of the number of public sector employees currently earning less than the National Living Wage. (HL2582)

Tabled on: 13 October 2015

Answer:

Lord O'Neill of Gatley:

At Summer Budget 2015, the Chancellor announced a new National Living Wage which is a compulsory increase in pay for all workers over 25. It will come into effect in April 2016 at £7.20, 50p above the current National Minimum Wage. The Government will ask the Low Pay Commission to recommend the level of the National Living Wage in each subsequent year, asking them to increase the NLW to 60% of median earnings by 2020. It is estimated that by 2020 approximately 200,000 public sector workers will benefit directly as a result of the National Living Wage.

But, there is an obvious problem here, i.e. the 1% cap on public sector paybill increases imposed by the Government. If that cap includes provision for giving the lowest paid public sector employees a mandatory pay rise, it might not leave much, if anything, for the rest of the staff.

Has the Government thought about this?

Question:

To ask Her Majesty’s Government whether they expect the cost of increasing public sector salaries to the level of the National Living Wage to be met from within the overall 1 per cent pay increase for such workers announced in the Budget. (HL2583)

Tabled on: 13 October 2015

Answer:Lord O'Neill of Gatley:

At Summer Budget 2015, it was announced that the Government will fund public sector workforces for an average pay award of 1 per cent for 4 years from 2016-17.

The impact of the new National Living Wage will be considered during the Spending Review as part of an overall assessment of spending pressures across the public sector.

I don't know about you, but that looks very much like a "no" to me...

Budget 2015 - the sequel: George Osborne screws the Civil Service...

It might have been easy to miss amidst the torrent of announcements that George Osborne finally made it clear that, whilst Britain deserves a pay rise, his largesse does not extend as far as the civil servants who are expected to deliver his reforms.

The announcement that pay restraint would be extended for another four years will have come as a body blow to many who have seen their pay go backwards relative to the wider economy over the past five years, by as much as 15% in some cases.

As the Budget Report says;

1.85 In the last Parliament, the government exercised firm restraint over public sector pay to deliver reductions to departmental spending, saving approximately £8 billion. As set out by the Chancellor at Autumn Statement 2014, the government will need to continue to take tough decisions on public sector pay in order to deliver reductions to departmental spending and protect the quality of public services. 

1.86 Overall, levels of pay in the public sector are now, on average, comparable to those in the private sector. However, public sector workers continue to benefit from a significant premium once employer pension contributions are taken into account, as shown in Chart 1.10. 

1.87 In light of this and continued low inflation, the government will therefore fund public sector workforces for a pay award of 1% for 4 years from 2016-17 onwards. This will save approximately £5 billion by 2019-20. The government expects pay awards to be applied in a targeted manner within workforces to support the delivery of public services.

In other words, £13 billion worth of cuts have been, and are to be, borne by public servants who have seen their job security taken from them, their pension contributions trebled and quadrupled, and their workloads increased - 'doing more with less' has become the ever-present buzzphrase in central government.

But, we were all in it together, weren't we? And the country was in a hole, right?

Well, if you look at the OBR projections for the next four years, average earnings growth is expected to be 3.8% over the next four years, compared to the 1% increase permitted for the public sector. And inflation? Approximately 1.7%, which means that public sector workers will fall far behind their private sector counterparts and see real terms cuts for good measure.

Now, it should be noted that a 1% increase in the paybill does not equate to a 1% increase across the board. Public sector jobs come with a payscale, whereby you enter at the lowest level (usually) and reach the maximum for the grade by means of increases over a period of years. Thus, those at the top of the payscale get less. The more numerate amongst my readers will see where the issue is here. Experienced staff will be even worse off, as has been the case for the past five years.

One side effect of the reduction in public sector jobs over the past five years is a significant fall in recruitment, and a resultant greying of the workforce that remains. Indeed, Lin Homer, Chief Executive of HM Revenue & Customs, noted that very concern a few years ago, and the National Audit Office repeated the message last month.

And, when the greybeards go, as they undoubtedly will, many sooner rather than later, the promise that pay will fall behind inflation from the day a new recruit walks through the door is hardly likely to act as an incentive to join. And, for those who have marketable skills, the decision as to whether they stay or go just got a whole lot easier.

You might almost think that the Conservatives wanted to destroy the public sector. But who would administer the country then?...

A cap on public sector redundancy pay-offs? A liberal bureaucrat writes...

The news that the Conservatives intend to legislate for a £95,000 cap on public sector redundancy pay-offs is a somewhat depressing way to start the New Year. That's not because I had any hopes of receiving such a thing myself - no, I'm fully hoping to fulfil my role for many years yet, but because it appears so contradictory to much of what is supposedly desirable.

Firstly, such a proposal flies in the face of the concept of localism. Shouldn't it be the case that a local authority, led by councillors who are directly elected, and deciding that a particular course of action offers best value to the electorate, should have the right to act accordingly, without arbitrary hinderance from central government? After all, if councillors are wasting my money, I can, and should, seek to replace them via the ballot box.

It also seems to contradict the expressed wish of the Conservatives to professionalise public sector institutions, attracting the best of private sector talent to enter public service. You are, already, probably asking them to take a sizeable pay cut - you'd already attacked public sector pay scales, and by now making it easier and cheaper to fire them once they've taken the leap, you chip away further at one of the more obvious attractions - stability of tenure.

It also risks reducing innovation in the delivery of public services. Why take on a new challenge, perhaps uprooting your family to do so, if there is a risk that it might not work out, causing you to lose your job? Senior public servants often discover that, after a change of administration, they may not suit the style of the incoming leadership yet be perfectly capable at what they were asked to do. Are you sure that punishing someone for being unlucky enough to be in the wrong place at the wrong time is fair or honourable?

It's also imprecise. Does the cap include pension contributions, lost bonuses and all the other paraphernalia of performance related pay. If so, might that remove from local government to reward on the basis of proven long-term achievement - for example, if you want to incentivise someone to ensure that target X is met in three years, are you saying that, should you decide that they need to go before that date, for reasons beyond your mutual control, they will forego that which they have earned?

And, finally, it is likely to impact on flexibility. Sometimes, it is better for all concerned to offer a package to bring a relationship to an end. If, on the other hand, the package offered is too restricted, why co-operate if the compensation on offer doesn't cover lost earnings, relocation costs, potential reputation damage? No, better to see out your contract and control your own future, especially given the costs of any legal process from the perspective of the employer.

Don't get me wrong, I can see the short term, political attraction of such a policy. Public sector workers are an easy target - overpaid, underworked, over-pensioned busybodies who get in the way of our day to day lives. The problem is, they're still needed, every time someone says, "There ought to be a law against it!", or, "The Government must act!", or when someone litters the street or requires someone to look after granny.

And if you want to attract the sort of people who can run those services better, find innovative ways or doing more with less or even, if you're the Government, run things without making you unpopular in the process, you really need to be a little more realistic, and offer slightly less blanket criticism and deprecation.

I'm a firm believer in a well-run, efficient and effective public sector. If you provide people with the right incentives, you can do more with less, generating the sort of goodwill that radical reformers need in order to re-engineer government to face the challenges of the coming decades. Sadly, I don't think that many politicians get it, and fear that those who do have vacated the field in search of more fruitful areas of campaigning. I just hope that we don't find ourselves regretting that one day...

Apparently, most highflyers in the private sector don’t think of themselves as monkeys…

On Tuesday, I wrote here about the issue of public sector pay in the light of George Osborne’s announcement inflicting further pay restraint in the sector. And so, it was with interest that I read in The Times of the appointment of a Chief Executive for the Civil Service, John Manzoni, described as a Whitehall insider. Manzoni is the Head of the Major Projects Authority, having taken up that role nine months ago following a spell as Chief Executive of a Canadian oil company, Talisman Energy Inc. Hardly an insider, I would suggest.

In July, following the decision to separate Sir Bob Kerslake from his job, David Cameron announced that he wanted someone with substantial experience of running a big private-sector organisation but, as the summer progressed, it became clear that very few business leaders were interested in the job.

Might the salary, a relatively meagre £190,000 per annum, have been a factor in their disinterest?...

George Osborne: paying peanuts and expecting not to get monkeys?

We will go on restraining public sector pay.

It was just one line in George Osborne's speech at the Conservative Party Conference in Birmingham yesterday, and it may have gone unnoticed by many out in the country, assuming that they were even paying attention to the speech itself. But, for public sector workers, it will have caused alarm and dismay in equal measure.

Years of pay freezes, or 1% paybill increases, and tens of thousands of job losses, combined with sizeable increases in contributions for smaller retirement pensions have seen earnings fall dramatically in real terms. An Executive Officer working for HM Revenue & Customs in London, for example, will have seen his or her salary increase from £29.272 in 2007/08 to £30,331 in 2013/14, an increase of 3.6%, or less than 0.6% year on year. That doesn't look good, but they will be paying an additional 3.85% in pension contributions. In other words, they are earning, in actual terms after pension contributions, marginally less than they were six years earlier.

These are, dare I remind you, gentle reader, the people who are expected to raise the funds to help meet the country's commitments, reduce the deficit and investigate all of those tax evaders who so exercise George.

Inflation over that period? 21%. You can see the problem. Indeed, the only consolation is courtesy of the Liberal Democrats, as the Personal Allowance, the amount that an individual can earn without deduction of income tax, has increased over the same period from £5,225 to £10,000. Alright, that hasn't earned any gratitude from the Civil Service trade unions, but since when was it likely that they would?

And, as the economy recovers, this steady deterioration in pay and conditions is beginning to have an effect. Last November, Accounting Web, which describes itself as the UK's largest community for accountants (I try not to recoil in horror...), noted that HMRC resignations were at their highest level since 2008/09.

There is, of course, a risk that those who resign are those most likely to find better pay and conditions elsewhere, but whilst HMRC continues to meet its targets, one cannot see the Treasury taking any action to improve pay competitiveness. After all, their pay scales are even worse, as Sir Nicholas Macpherson, the Permanent Secretary at HM Treasury, noted last year;

It’s frustrating for us to be some sort of feeder second division Belgian football team which provides really good people for Premier League teams like Chelsea and Manchester United.” Sir Nicholas said he had discussed the matter with the Bank of England’s Governor, Mark Carney who had been “very helpful”.

One really does wonder if we want the country to be run efficiently... 

Osborne and public sector pay: the market cuts both ways, you know...

It is said that you should be careful what you wish for, and today, the public sector trade unions are  discovering that the saying comes with a further corollary.

In the midst of the debate on benefit caps, Labour proposed regional variations in the level of those caps. The logic was obvious - some places are more expensive to live in than others - and undeniable. Unfortunately, the reverse is also true, in that some places are cheaper to live in than others, a conclusion that was quickly seized upon by Iain Duncan-Smith amongst others. And if you apply that logic, you can argue that you should cut benefits in places where housing is cheaper, or where commuting costs are lower.

But, of course, those aren't the only people who receive their income from the State. Civil servants too, could be presented with the same logic, if the rumours emerging from George Osborne are to be believed. Apart from London Weighting, all civil servants in a Government Department are on the same pay scales, whether in Ipswich or Coleraine, Dunfermline or Aberystwyth. It doesn't take a genius to see the temptation.

There was a time when civil service salaries were decided on the basis of comparators with the private sector. Better pension rights, job security and rather civilised working arrangements in the public sector were offset by better basic pay rates in the private sector. It was a trade-off, and one that seemed to work.

But much has changed over the decades. Work, and jobs, have been moved away from London and the South East to rather worse off parts of the country in need of employment. By doing so, two things were achieved - reducing the staffing costs for government and reducing unemployment levels in places like South Wales, the North East of England and Central Scotland. If you were a London based civil servant, you probably kept your job - natural wastage usually saw to that - but your career prospects were seriously damaged as promotion opportunities dried up.

And recruitment dried up too, creating an ageing Civil Service workforce. In London, particularly, with pay rates losing value over more than a decade, even in good times, even when vacancies were advertised, the calibre of those applying fell - the brightest and the best wanted to make serious money, not altruistically work in an undervalued, much criticised institution.

Outside London, where the pay scales were more competitive, recruitment and retention were somewhat easier. But, if salaries become less competitive - and the changes in pension rules that already apply have made civil service pensions less obviously attractive than they used to be - the ability to attract bright people to deliver vital public services is weakened.

It is possible that, in some places, recruitment and retention rates might not deteriorate if you cut pay in real terms. I fear that there won't be many of them. And in some places and in some Government Departments, such as HM Revenue & Customs, it will become apparent that the pay scales are wholly insufficient. It is, frankly, unlikely that George will consider raising those salaries to reflect what market rates are. But, in Osborneland, the market is a fickle thing.

So, if I have some advice for Danny Alexander (apart from trying to avoid pandas), it would be, "Don't try this, not if you want a Civil Service that can deliver its tasks for much longer.".