Four questions Osborne must answer before introducing regional pay

Why has the Chancellor jumped the gun of an independent review?

Why has the Chancellor jumped the gun of an independent review?

The budget leak about introducing more localised pay-setting for civil servants in a number of government departments is not a great surprise. The Treasury has been toying with regional pay issues since the IFS reported that earnings are 10 per cent higher for men and 15 per cent for women in the public sector in Wales, Scotland and Northern Ireland.

What is surprising is that such an announcement should pre-empt the findings of the Independent Pay Review Bodies' review, commissioned by Mr Osborne, which is due in July. If the Chancellor is to jump the gun in this way then he needs to address four big questions.

1) Is there evidence that public sector pay rates have a direct effect on private sector wages and job creation in regional economies?

While few dispute evidence of a pay gap, changing the current system would appear to be based upon the principal assertion that high public sector pay rates in weaker local economies are making it difficult for private sector companies to recruit staff. It is not difficult to find disgruntled employers who are prepared to endorse this line of thinking but policy by anecdote is a dangerous business and there is no substantive evidence that this is the case.

What limited evidence there is on the impact of public-private pay gaps - an LSE report on the impact of pay differentials on hospital performance - highlights pay effects on depressing performance in high wage areas, but this is an altogether different argument.

2) Will the pay gap will close without further government intervention?

In his first budget as Chancellor, George Osborne announced a public sector pay freeze which he has subsequently extended to last over three years. In preliminary analysis carried out by IPPR North, this in itself would appear to be sufficient to close the gap by 2015. If the government needs to embolden its approach then it must provide evidence that additional measures are needed above and beyond the pay freeze already announced.

3) Has the Chancellor screened out a raft of unintended consequences?

Perhaps the greatest concern about reducing public sector pay is the risk of depressing weaker economies still further. The government's argument that public sector jobs were crowding out the private sector is looking increasingly flawed as Northern economies experience a double dip jobs recession and unemployment touches 10 per cent across the North.

In fact, public sector cuts have hit the public and the private economy hard and what is needed is stimulus not further constraint. Furthermore, squeezing pay risks a race to the bottom which ultimately undermines productivity and reduces the competitivity of Northern economies exacerbating the North-South divide.

4) If localising pay is such a good idea, then why are private companies doing the reverse?

In one of the more interesting interventions on this debate, the Incomes Data Services have produced a report looking at the use of regional and local pay by the private sector. They find that the only real regional pay variations that exist are between London and the South East and the rest of the country.

Furthermore, aside from housing costs in the Greater South East, the cost of living across the country is converging. For this reason, most large national and multi-national private sector companies are moving away from complex regional, zonal and local pay structures which breed resentment and reduce productivity, in favour of simpler systems which top-up London pay.

If the Chancellor is serious about stimulating growth in less prosperous places then perhaps he should look to grow investment and productivity outside London rather than precipitate a race to the bottom in places that are poor enough already.

Ed Cox is Director of IPPR North

Ed Cox is Director at IPPR North. He tweets @edcox_ippr.

Photo: Getty
Show Hide image

If the left leaves it to David Cameron, we'll have Brexit for sure

Only an upbeat, leftwing case can keep Britain in the European Union.

After months flapping and hesitation, and with much of the reporting and detail so dull that it has barely penetrated the consciousness of even those who speak the language of ‘directives’ and treaty provisions, the EU referendum is upon us. With David Cameron signalling concrete outcomes for negotiations, we seem to be set for June, whatever the protests from opposition parties about the date being too close to local and national elections.  

Cameron’s deal, whose most substantive element consists of denying in-work benefits to European citizens, exemplifies the kind of debate that Conservative strategists want to create: a tedious, labyrinthine parochialism, blending the EU’s procedural dullness with an unquestioned mythology of the little Englander. Try actually reading the various letters, let alone the draft decisions, that Cameron extracted from Donald Tusk, and the agreement turns to putty in your head. But in summary, what Cameron is negotiating is designed to keep the EU debate as an in-house affair within the right, to continue and formalise the framing of the debate as between two strains of anti-migrant sentiment, both of them backed by big business.

The deal may be reactionary, but it is also mediocre in its scope and impact. The worries that many of us had in the leftwing pro-In camp, that Cameron’s deal would push back freedom of movement and working and environmental protections so far that we would be unable to mobilise for continued membership of the EU, can now be put to bed. Quite the opposite of allowing Cameron's narrative to demoralise us, the left must now seize an opportunity to put imagination and ideas back at the heart of the referendum debate.

The British political landscape in which that debate will play out is a deceptively volatile environment. Party allegiance is at a nearly all time low. Inequality is growing, and so is the gap between attitudes. The backbone of the UKIP vote – and much of the Out vote – will come from a demographic that, sometimes impoverished by the legacy of Thatcherite economic policy, sees itself as left behind by migration and change. On top of the class war, there is a kind of culture war underway in today’s Britain: on one side those who see LGBT rights, open borders and internationalism as the future; on the other side, those who are scared of the future. About the only thing these groups have in common with one another is their anti-establishment instincts, their total disdain and mistrust of politics as usual.

The only political movement to have broken through the fog of cynicism and disillusionment in British politics has come from the left. Jeremy Corbyn’s rise to the leadership of the Labour has unleashed something new - and while large parts of the press, and some Labour backbenchers, have portrayed this rise as a crusade of the “croissant eating” metropolitan elite, the reality is very different. The rise of the new Labour left has given voice to a renewed socialist and working class politics; its explicitly radical, outsider approach has given it traction across the social divides – among the young looking for a future, and among Labour’s old base. 

A politics of hope – however vague that term might sound – is the only real answer to the populist Euroscepticism that the Out campaign will seek to embody. Radical politics, that proposes an alternative narrative to the scapegoating of migrants, has to find voice in the course of this referendum campaign: put simply, we need to persuade a minimum wage worker that they have more in common with a fellow Polish migrant worker than they do with their employer; we need to persuade someone on a social housing waiting list should blame the privatisation of the housing market, not other homeless families. Fundamentally, the real debate to be had is about who the public blames for social injustice: that is a question which only the left can satisfactorily answer.

The outsider-led volatility of British politics gives the EU referendum a special kind of unpredictability. For voters who have lost faith in the political establishment – and who often have little materially to lose from Brexit – the opportunity to deliver a blow to David Cameron this summer will be tempting. The almost consciously boring, business-dominated Britain Stronger In Europe campaign makes a perfect target for disenfranchised public sentiment, its campaigning style less informed by a metropolitan elite than by the landed gentry. Its main weapons – fear, danger and uncertainty – will work on some parts of the electorate, but will backfire on others, much as the Better Together campaign did in the Scottish referendum.

Last night, Another Europe is Possible held a launch meeting of about a hundred people in central London - with the backing of dozens of MPs, campaigners and academics across the country. It will aim to provide a radical, left wing voice to keep Britain in the EU.

If Britain votes to leave the EU in June, it will give the Right a mandate for a renewed set of attacks on workers’ rights, environmental protections, migrants and freedom of movement. But without an injection of idealism and radicalism,  an In vote will be a mandate for the status quo - at home and in Brussels. In order to seize the real potential of the referendum, the left has to approach the campaign with big ideas and demands. And we have to mobilise.