Saturday, March 17, 2012

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.".

No comments: