http://www.guardian.co.uk/society/2012/mar/16/public-servants-poorer-regions-lower-payGeorge Osborne to argue in budget that pay should reflect local economies but critics say it will entrench north-south divide
George Osborne will announce plans to pay lower salaries to public sector workers in poorer parts of the country in his budget next week.
The chancellor will argue that public sector pay should mimic the private sector and be more reflective of local economies. He intends to start the process in three Whitehall departments in the coming financial year, as part of a phased introduction.
Critics say the move will entrench economic divisions between north and south and depress regions of the country already struggling in the economic downturn.
It has not yet been decided if localised pay will apply only to new staff or to existing staff as well, but it was being stressed that no current employee would suffer a pay cut. Instead pay levels will gradually be adjusted to take account of costs, leading to larger pay rises in the south-east where some labour shortages exist.
The plans emerged as the four top figures in the budget discussions spoke on the phone in an attempt to finalise the complex Treasury package to be published on Wednesday. Much of the discussion focused on the concessions being sought by the Liberal Democrats in return for agreeing to a cut in the 50p top rate of income tax, as well as the timetable by which this could be achieved.
Osborne plans to make the cut in the 50p rate for those earning over £150,000 the centrepiece of the budget, and is said to have been angered by the proposal leaking out this week. The chancellor was inundated by conflicting advice from Tory MPs as to whether the decision would be a political disaster at a time of austerity.
Many Tories tried to blame Lib Dems for the leak, saying it undermined trust between the two coalition partners.
The controversy over the top rate of tax will only be deepened by the revelation that the chancellor wants to press ahead with localised public sector pay. The Treasury will announce that 140,000 posts in the public sector will be the first to be subject to the new rules.
The first posts to be considered for localised pay are the 100,000 staff in the Department for Work and Pensions; 21,000 posts in the Home Office, including Border Agency staff; and 16,000 staff in the Department of Transport, including the DVLA in Swansea.
The Treasury intends to spread the reforms beyond the civil service across the public sector in the years ahead as staff come out of the public sector pay freeze.
The department is not trying to introduce just regional pay, but local or zonal pay that might take account of, for instance, living costs in suburban Manchester as opposed to inner-city Manchester.
The Treasury regards the change as one of the most important measures it can introduce to rebalance the economy. Osborne claims the move would provide a boost to the private sector in the north and south-west, arguing that employers in these areas cannot afford to recruit staff owing to the relatively high public sector wages in cheaper areas of the country.
The risk is that localised pay will fuel a boom in the high-wage south-east and further depress the north, so entrenching economic and social divides.
The Institute for Fiscal Studies found that earnings were more than 10% higher for men and 15% for women in the public sector in Wales, Scotland and Northern Ireland.
The Treasury's own research shows that public sector pay is 40% less responsive to local costs than the private sector. The main model for local or zonal pay so far has been the courts service.
The business secretary, Vince Cable, has spoken of the practical difficulties with the scheme and urged the government to handle the issue with great care.
He said: "It isn't just the political issue that people are going to be levelled down in some of the relatively low-wage areas; I think there is this genuine problem about how you get a career progression [among] long-term civil servants if you have differential pay."
Osborne outlined the plan in the autumn statement when he said he would ask the independent public sector pay review bodies to consider how to make public sector pay more responsive to local labour markets and report back by July.
Public sector unions say national bargaining brings economies of scale to public sector pay. The NHS, for example, has 161 acute hospital trusts. Each of these, it is claimed, would have to gather labour market intelligence, draw up a negotiating position, hold a number of negotiating meetings involving senior staff, and set up new payroll systems.
The unions will be furious after they have undergone a two-year pay freeze, cuts in their pension entitlements and cuts in as many as 700,000 public sector jobs.
In a sign of the already fractious relations, it was announced yesterday that civil servants in the Public and Commercial Services Union have voted to reject the government's latest pension proposals and continue industrial action.
Osborne has noted that Labour has endorsed regional welfare caps, and believes Ed Miliband has therefore already introduced the notion of regional incomes.
The plans will add to tensions about the overall political direction of the budget. Lib Dem willingnesss to see an end to the 50p rate in the right circumstances did not lead to serious protests inside Nick Clegg's party, although the leftwing Social Liberal Forum issued a statement urging the party to stand firm.
Ed Balls, the shadow chancellor, described the runup to the budget as a shambles. He said: "The idea that, when fuel bills are going up, tax credits are being cut and families are under real pressure, his first priority is to cut taxes only for those over £150,000? That is the wrong priority. It would be completely out of touch.
"I hope even at this late stage he will change course and help families in our country. That's what we need."
Are you talking about the national economy or local economies?I don't have any problems with public sector pay mirroring local conditions and private sector pay. In fact I find the thought of public pay outstripping private sector pay nauseating. If you allow that sort of thing to happen you stifle the economy and struggle to raise enough money to cover public sector spending, which doesn't benefit anyone.
NHS spending has to b controlled one way or another. The burden of healthcare is ever increasing and the money available is stagnating....something has to give unfortunately.
Increasing costs of healthcare don't go away by reducing public health expenditure. If anything, they become worse. The costs have to be met one way or the other....either fairly or unfairly. What you're suggesting is that the costs be met unfairly, like in the US.NHS spending has to b controlled one way or another. The burden of healthcare is ever increasing and the money available is stagnating....something has to give unfortunately.
Well he sure as hell won't be looking to raise it. There's a wonderful logic to regionalised pay. "hmm, how to fix poorer areas? I know, pay them even less"I wouldn't have a problem with equalising salaries to match housing costs in particular, if it wasn't done with the general aim of driving public sector pay down.
What I find nauseating is the years and years of outsourcing the lowest paid jobs in the public sector (cleaners, guards, canteen staff, etc), which A) means these people's conditions deteriorate even further over time, and B) in the long term will both lower the average private sector pay, and increase the average public sector pay (purely as a result of the statistical trickery of lower paid jobs transferring) which means someone can come along, as they are now, point out this "disparity", and attack the wages of the public sector workers that they can't outsource at present.I don't have any problems with public sector pay mirroring local conditions and private sector pay. In fact I find the thought of public pay outstripping private sector pay nauseating. If you allow that sort of thing to happen you stifle the economy and struggle to raise enough money to cover public sector spending, which doesn't benefit anyone.
NHS spending has to b controlled one way or another. The burden of healthcare is ever increasing and the money available is stagnating....something has to give unfortunately.
I think this already happens in some situations with 'golden handcuff' or 'golden hello' type deals for some of the roughest schools.I also would end national pay rates in the public sector, but instead base pay on the number of applicants applying for vacancies. For example, advertise a primary school teacher or assistant job in a Northern middle-class leafy suburb and you are likely to get hundreds of applicants. Advertise one in a drug-riddled sink estate and you'll be lucky to fill it. The solution, without adding cost, is to reduce pay in the former and give it to the latter.
Yes it does, but it's been done in the context of putting more money in, which of course any fool can suggest, and it hasn't been enough. What I am proposing would be cost-neutral, or if necessary cost-saving, by reducing the pay of new starters/new promotions where it is easy to recruit in order to increase pay where it is harder. And not just in education.I think this already happens in some situations with 'golden handcuff' or 'golden hello' type deals for some of the roughest schools.
You see no issue with a policy that guarantees to make millions of people significantly poorer than they otherwise would be? No issue at all with reducing the amount of money floating around in the economies of poorer regions? Really?I'm surprised to learn this isn't already the case. The Unions will hate it as they have their own vested interests and have to be seen to stand up for their members but it's simply good policy.
As long as they implement it through varying future pay rises and gradual changes in the pay scales of new recruits then I see no issue.
Depends if they bring in this mansion tax or not.Of all the taxes the tories could cut the most important for them is the one that only helps the wealthy
Not with Miliband at the helm.comeback for Labour?
If income tax is such a burden on the wealth creators ability to employ people why would a mansion tax make it better?Depends if they bring in this mansion tax or not.
at least have the damn rich pay their share instead placing all the burden on ordinary people.Confiscate the mansions and give them to real people
And tax the rich at 90% and everyone else at 5
I'm sure I read that the top 10% account for around 50% of the tax income. Top 1% account for 20%.at least have the damn rich pay their share instead placing all the burden on ordinary people.
How many bloody mansions and yachts do they need?
Rich people say this all the time, the fact it isn't true or at least isn't proved sets the argument back somewhat.People have far too idealistic a view on these matters.
Saying the rich should pay 'their fair share' and abolishing the 50% rate is 'just to favour the rich' is nonsense. If cutting the top rate results in an overall higher yield then how is that not better for the economy as a whole?
Thats what happens when the earnings of those at the top ballons whilst those of the bottom stagnateI'm sure I read that the top 10% account for around 50% of the tax income. Top 1% account for 20%.
Not saying that's right or wrong but the majority use more than they pay for because of the rich folks contributions.
Trickle down economics does not work.People have far too idealistic a view on these matters.
Saying the rich should pay 'their fair share' and abolishing the 50% rate is 'just to favour the rich' is nonsense. If cutting the top rate results in an overall higher yield then how is that not better for the economy as a whole?
I think its more about bringing us in line with others in Europe to make Britain more attractive for high earners.Rich people say this all the time, the fact it isn't true or at least isn't proved sets the argument back somewhat.
Trans-national tax competition is a different argument. It seems to me like a list of arguments to achieve a goal. Reduce taxes on the high earners; use whatever argument to justify it, if one argument is disproved move on to the next.I think its more about bringing us in line with others in Europe to make Britain more attractive for high earners.
Eurozone average is around 42% and EU average is about 37%
HMRC report this week should give some indication if the 50% rate is actually offering anything. Difficult discussion though as morals will shroud the maths behind it, even if it does make sense to cut the rate.
