CONTROVERSIAL plans to end the system of national pay bargaining within the public sector could leave workers in some areas of Yorkshire facing “a decade of pay freezes”.
Millions of staff in some of the most deprived areas of the country could have their salaries frozen for years under radical plans to move to a “sub regional, zonal system” of pay bargaining.
According to Treasury documents, Yorkshire has the highest public sector pay premium in England – with workers estimated to earn 13.4 per cent more than private sector counterparts.
However the statistics, provided by the Institute for Fiscal Studies (IFS), are also broken down by sub region – the level at which the Government may introduce pay bargaining – and at this level East and North Yorkshire are considered to have a 20 per cent pay premium, the highest in the UK.
The Government believe such a disparity is hampering private sector investment, and Chancellor George Osborne said he wanted to make public sector pay more “responsive” to local pay rates.
However critics have said the move will create an even bigger economic divide between the North and South and plunge parts of the country already struggling financially into an even deeper depression. Public sector salaries in the South East are on average 2.5 per cent lower than those in the private sector.
Rachel Reeves, Shadow Chief Secretary to the Treasury and MP for Leeds West, said that as private sector salaries were increasing by around two per cent a year, a 20 per cent premium could leave some public sector staff facing a decade of pay freezes.
She added that the economics of the plan were flawed as many staff commute to work, and so their pay would not reflect their cost of living, while private sector growth would be hit by the lack of spending power of public sector staff, who in some areas make up 40 per cent of the population.
“The reason businesses are struggling is because the economy is flat-lining and credit is not moving from the banks,” she said. “This is meaningless economics. You should be paid for the job you do, not where you live.”
Shadow Chancellor Ed Balls said the proposal could actually cost the Treasury money in the long term, while draining talent from the regions and into London.
“I’m fearful that a move to regional or local pay bargaining will be very expensive for the Treasury.
“That’s why in the past we’ve kept review bodies,” the Morley and Outwood MP said. “If you have hospital vs hospital and school vs school, competing for a shortage of staff, that can end up costing you more and not less.
“And I fear that it goes in the opposite direction of a sensible regional development policy. We ought to be trying to find ways to get extra skills and jobs into the regions, rather than sucking talent back into London.”
London weighting already existed across the public sector, and Treasury Ministers launched a staunch defence of the proposal, claiming private firms in the regions had complained they were being “squeezed out” by disproportionately high public sector pay.
Secretary to the Treasury David Gauke said: “I think what has been talked about is the continuation of (pay) freezes – there’s been no talk about cuts. We need to have a pay structure that accurately reflects local needs.
“You have to bear in mind what the objective is here, which is a rebalancing of pay. In recent years we have been too dependant on one sector. We need to put in place the conditions for strong private sector growth across the UK.”
Simon Walker, director general of the Institute of Directors, said: “Moving from national pay scales to regional pay rates is simply about recognising economic reality. In the private sector, wages vary across the country due to varying costs of living, so doing the same in public sector salaries is a fair and reasonable change to make.
“Many of our members find artificially inflated public sector wages are crowding them out of the recruitment market, preventing private sector growth.”
However the controversial plan will put the Government on another collision course with the unions – who last night warned a one per cent reduction in public sector wages would hit local economies by at least £1.7bn a year.
Dai Hudd, deputy general secretary of the Prospect union, said: “This ill-thought through policy advocates holding down pay in certain areas of the country, based on the flawed economic logic that it will encourage local enterprise.
“The Cabinet Office should be ashamed to have produced such poor quality evidence in support of a policy that has devastating implications for large parts of the UK and their local economies.”