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5 November 2014

Labour and the unions must develop an alternative to the public sector pay freeze

The Labour public sector agenda should include excellent services and decent pay.

By David Coats

All the major political parties proclaim their commitment to high quality public services. The coalition has singled out the NHS for exceptional protection (although the policy is more smoke and mirrors than a reality) and the Labour party has sought to trump this offer with pledges for twenty thousand more nurses and eight thousand more GPs to be recruited after the general election. For both parties the emphasis is still on inputs rather than outcomes, even though only outcomes really matter.

The recent economic news suggests that the situation is likely to get worse before it gets better. Weaker than expected tax receipts, low wage growth and the rapid creation of low wage jobs contradict the Chancellor’s belief that his long-term economic plan is working. A corollary of the deteriorating position, assuming that there are no tax increases under a Conservative government after May 2015, is that deeper spending cuts and more job losses will be needed across the public services. 

Moreover, the level of austerity required to hit the coalition’s target for deficit reduction will lead to more than a million job losses in the public sector between 2010-11 and 2018-19. The Institute for Fiscal Studies, with masterly understatement, describes the delivery of these objectives as involving “substantial challenges to policymakers”. A more sceptical observer might prefer to use words like unrealistic and undeliverable.  The chief executive of the NHS in England has admitted as much in his strategic plan for the health service.

Real pressure points are beginning to appear. Pay rates in social care are rarely above the level of the National Minimum Wage and zero hours contracts are on the increase. Service quality is suffering and will deteriorate further if these trends continue. Serious recruitment and retention problems are certain to emerge, just as they have in the past, if the public sector-private sector pay gap widens significantly. None of these difficulties will disappear with a change of government. Labour, even if it adopts some modest, growth-oriented policies, will be faced with tough choices about public spending priorities.

So far as the management of the public service workforce is concerned, perhaps the most pressing problem for all the political parties is that the historic settlement offered to public service employees is now dead and unlikely to be resurrected.  In the past, the public sector paid lower but more stable wages and salaries than the business sector, provided superior final salary pension schemes, maintained strong collective bargaining and embraced union participation in organisational change. This employment model has been under sustained attack for the last thirty years, initially as a result of dominance of neo-liberal ideology resulting in privatisation and outsourcing, through the introduction of competition or quasi markets and finally as a result of the direct assault on final salary pension provision. 

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In parallel with these changes in employment practice, governments of all political hues have used the rhetoric of public service reform to create the impression in the electorate’s mind that public services are failing. The chorus of disapproval is heard more often on the right than the left but leaves public servants with the impression that they are lazy bureaucrats with no appetite for change. More seriously, perhaps, the persistent denigration of public service as a vocation has negative effects on recruitment and retention. If the situation is as awful as ministerial speeches (and media coverage) suggest then why should any bright, ambitious, newly minted graduate choose public service over more lucrative opportunities in the business sector? The successful implementation of public policy requires that the brightest and the best be on hand to deliver the government’s and wider public sector’s programme. The failure of public services becomes a self-fulfilling prophecy if the most able decide to focus their energies elsewhere.

These observations should not be read as a defence of the status quo. Public expectations have changed and citizens are increasingly demanding quality and responsiveness. Technological change is transforming the ways in which citizens access public services. There are more demands for transparency and the use of social media makes it easier for the public to offer a real time critique of service quality. At the same time, policymakers have to meet the challenge of an ageing population. Health and social care must be integrated. Rising affluence, global competition and new technologies place an increasing burden on the education system. Citizens are demanding more personalisation and higher quality services even though there is less money.  Politicians, public service managers and trade unions must all accept the irresistible case for change. Everyone has to be honest about what can be achieved with much less funding – “more for less” is now a redundant and misleading expression.

Change on this scale demands not just the consent but also the enthusiastic support of public service employees. According to the authoritative “Skills and Employment Survey” workers in the public sector today are more anxious about threats to their job status than their business sector counterparts. Levels of employee engagement are much lower than one would expect in organisations supposedly committed to excellence in service delivery. At present the conditions for successful change are not being met. Public service employment practices, especially staff involvement and engagement, must be very different in the future.

The possibility of a collaborative approach is more than wishful thinking.  For example, the NHS Partnership Forum already makes a valuable contribution and can play a pivotal role in the future as the health service is reconfigured. In schools education before the 2010 election, relationships between civil servants, ministers and the teaching unions were effectively managed through a similar social partnership arrangement. Public service trade unions have a proven capability to be agents of change, fostering workplace cultures where employees understand their role in the process of continuous improvement. Moreover, union involvement can legitimise difficult choices about service redesign and resource allocation.

There are countless other examples of unions and staff leading the way to innovate and reform public services to the benefit of their users. Developing a constructive dialogue of this kind proves that industrial relations is more than a zero-sum game. Both parties can benefit from effective engagement even if neither has all their demands met. The public sector and public service employees can show leadership to the business sector in terms of employee engagement and decent terms and conditions.

Policy differences between the principal political parties will inevitably affect the course of events. If the Conservatives are in office after May 2015 then the unsatisfactory status quo is certain to continue. At first glance the Labour Party are just as committed to toughing it out with the public service unions despite the self-evident risks involved in maintaining the paybill freeze. If Labour has a small majority or is reliant on the support of other parties in the House of Commons then the last thing a newly elected government will want is a series of prolonged and disruptive disputes about public sector pay.

Perhaps the best starting point is a joint declaration by the government and public service unions (ideally co-ordinated by the TUC) that public services must deliver the best possible outcomes for all citizens. Trade unionists are also users of public services and citizens. They have at least a triple interest in public service reform that leads to better outcomes for users and the wider community. In practice this means that any residual institutional inertia must be resisted and the necessity of service redesign embraced.  The new employment settlement must include a commitment to flexible forms of service delivery and a guarantee of high quality employment. In our experience trade unions and employees want to support change but understandably not at any price. Reform has to be accompanied by fairness for employees.

While the paybill freeze may not be brought to an end immediately, it should be possible to secure a phased return to normal systems of pay determination (whether through collective bargaining or the work of the pay review bodies) with an immediate focus on the unacceptable levels of low pay.

The TUC and the government could agree rising cash parameters for the paybill over the lifetime of the parliament, leaving some flexibility in managing the distribution and allowing, of course, for bargaining. More specifically, government could commit to implementing the Living Wage as a pay floor across all public services by 2020 at the latest – including activities now outsourced to the business, social and voluntary sectors.

An effort could be made to eliminate gender pay equality through a phased upward harmonisation of men’s and women’s pay and action could be taken to ensure that collective agreements set the employment conditions for all workers involved in public service delivery – including those employed by the business, social and voluntary sectors and subcontractors. If this last point sounds ambitious, it should be recalled that measures of this kind were taken by the 1997-2010 Labour governments to eliminate the “two-tier” workforce in local government and extend the Agenda for Change agreement to businesses delivering services for the NHS. It makes sense not only to reinstate these measures but apply them systematically, ensuing that the “fair wage” is the negotiated rate.

All changes in service design (whether implemented by the public, private or third sectors) should be subject to proper staff and union consultation and involvement.  Moreover no decisions about implementation should be taken until the process is complete.  Participation on this model has a proven impact on employee engagement and productivity.  A Labour government should ensure that it is applied consistently across the public services to in-house and outsourced provision.

Finally, New Labour’s default setting that outsourcing is always best and quasi-markets are better than no market has to be consigned to the dustbin of history. The political and economic landscape has been transformed since 1997 – new problems require new solutions.. A Labour government elected next year should therefore promote and nurture public sector partnership and reform as the preferred approach. Of course, there is still likely to be some outsourcing and when it does occur the unions must be confident that decent conditions of employment are protected. The rationale for the decision to outsource must be clear and transparent. Public bodies should be obliged to take a holistic view of the economic, financial and social implications when considering any significant change to service delivery, funding or outsourcing. 

Moreover, employees and trade unions must have the right to review and comment on the business case for outsourcing prior to any tendering. They must have a right to discuss these matters with the employer and receive a reasoned response. Employees and unions must also be active participants in contract allocation, monitoring and review. And for major contracts business sector providers should publish details of senior executive remuneration.

The Transfer of Undertakings Regulations (TUPE) must be fully applied to all outsourcing or secondary contracting of public services, protecting public service workers transferred to the private contractor. Decent employment terms such as the Living Wage and no involuntary “zero hours” contracts should be mandatory; other bad practices must be eliminated – for example, care workers should be paid for their travel time between appointments. These conditions should apply throughout all supply chains for public services. 

If this programme is implemented then public service employees should feel less anxious about their futures and more willing to engage in change and reform.  Public service employees wish to serve their clients, service users and communities and have too often been held back by bad employment practice and poor terms and conditions. A Labour government should work in partnership with trade unions and public service employees to end low pay and rebuild employment security.

The alternatives facing politicians, public service employers and trade unions are clear: either unions and government reach a new settlement or the continuation of low intensity industrial relations conflict is a certainty. The coalition are unlikely to change their position before the general election, but there is no reason why Labour and the unions should not have exploratory conversations about the outlines of a new deal for public service workers and citizens. Having a recipe for industrial peace and service redesign with the consent of the workforce could prove a significant political advantage, demonstrating that we really are all in this together. What have Labour and the unions got to lose?  

David Coats is the director of Workmatters Consulting and a visiting professor at the Centre for Sustainable Work and Employment Futures, University of Leicester; John Tizard is an independent consultant and a visiting fellow at London South Bank University