Public and private sector pay – thoughts

for the futureKen Mulkearn, Editor, IDS Pay Report, Pay in the

Public Services

1 December 2007RCN Stewards National Conference

Government policy

Various elements, but lack of coherence?

No single location where policy is set out

Various sources

Most substantial - Treasury guidance on civil service pay

Contradictory...

Elements of policy

Pay rises must be affordable and prudent

Must be sufficient to motivate, recruit and retain

Should be consistent with inflation target

Reform of pay progression to keep more skilled staff in front-line roles

Pay progression should not be automatic

Equal pay is at heart of changes to pay and grading

Local/regional pay flexibility should be examined

New grading systems should be based on JE and single status

Three phases of policy

1. 1997-1999: New Labour government follows predecessors’ spending targets

2. 2000-2003: ‘modernisation’ period

3. 2004- ? : restraint, with pay rises in line with Government’s inflation targets

Elements of ‘modernisation’

Focus on national pay spines with varying degrees of local flexibility over grading

Job evaluation to address equal pay problems

Reform of grade structures, with shorter scales and emphasis on career paths

Most success in NHS and schools

The current policy – outcomes (1)

Review Body remits expanded to include affordability and meet inflation targets

Local pay on agenda

‘Pay Gateway’ committee to police offers

Tougher policy - rhetoric and interventions

Impact on public sector pay rises

Effect on relative earnings growth

Public sector employment levels

-400

-300

-200

-100

0

100

200

1992 1994 1996 1998 2000 2002 2004 2006

change in employment (thousands)

Outcomes of policy (2)

Key public sector pay rises in 2007

Group/organisation % rise

Armed Forces Review Body 3.3 (most ranks)

Department of Work and Pensions 2.0 (maximums); 1.0-4.0 (minimums)*

Doctors’ and Dentists’ Review Body 2.0 (paybill)

Fire Service NJC 2.4

Local government NJC (E&W) 2.475

NHS Review Body (England) 2.0 (annualised; staged)

NHS Review Body (Scotland, Wales and NI) 2.5

Prison Service Review Body 1.5 plus 1.0 (staged)

School Teachers’ Review Body (E&W) 2.5

*First year of imposed three-year award

IDS Pay Databank – basic pay rises

For three months to end Nov 2007, based on 70 settlements covering 1,465,376 employees in total

Median 3.5% (whole economy)

Interquartile range 3 to 4.1% (whole economy)

Manufacturing and production 4.1% (median)

Private services 3% (median)

Public sector 3% (2007 median)

Relative earnings growthAverage earnings growth, public and private sectors, January 2005-

present

1.5

2.5

3.5

4.5

5.5

6.5

7.5

%

Privatesector

Publicsector

Ave earnings for key public sector jobs

Average earnings in key public sector jobs as a proportion of average for all employees

80

90

100

110

120

130

140

2000 2001 2002 2003 2004 2005 2006 2007

%

average forallemployeespoliceofficer

teacher

firefighter

socialworker

nurse

What’s in a pay rise?

More difficult to measure than first appears

Various elements – basic pay, progression etc.

Unique approach in civil service

Real difficulties in assessing contribution of progression

Private sector approach?

Public sector – is progression a benefit or cost?

Issues in public sector pay (1) - inflation

Government’s inflation target = CPI

But main measure in private sector = RPI

RPI used for indexation of pensions, benefits

Also used to adjust pay for inflation (‘real wages’)

Macroeconomic policy – other measures

RPIX – excluding mortgage interest payments

HICP (CPI)

HICP – Harmonised Index of Consumer Prices

Dec 2003 – Chancellor’s speech on Euro

Excludes council tax and housing costs

Method used for calculating changes in prices

Generally lower than RPIX and RPI

Criticised by Bank of England for excluding housing costs

‘Core inflation’

Inflation and pay settlements

0

1

2

3

4

5

1996 1998 2000 2002 2004 2006

% RPI

Median settlement

CPI

Are pay rises inflationary?

Wage negotiations normally retrospective

‘Wage-price spirals’ – do these exist?

Wage rises often accompanied by productivity rises

What’s really been driving inflation recently?

Issues in public sector pay (2) - local pay

Generally strong labour market

Key workers priced out of housing market

Private sector – raise pay levels in ‘hot spots’

Treasury: ‘Depts will be challenged on degree to which their pay proposals are consistent with local pay policy’

Previous public sector practice – focus on London and SE

Now – shift in emphasis to lower pay in ‘cool spots’

NHS – HCAS and RRPs

Issues in public sector pay (3) - ‘Total Reward’

Cabinet Office – policy and ‘toolkit’

Continuum of approaches…from ‘total reward statements’ to policies that include flexible benefits and performance-related pay

Different contexts in private and public sectors?

Mainly still an aspiration in public sector

Private sector – usually at better-paying firms, eg finance

Issues in public sector pay (4) – equal pay

Key driver for ‘Agenda for Change’

Gender pay gap wider in private than public sector, but persistent in latter at 14%, despite various initiatives

What impact will Government pay policy have?

Gap for ambulance staff narrowed from 7% in 2002 to minus 2.17% (in women’s favour) in 2007

But gap for nurses widened slightly by 0.2% over same period, to take it to 2.3% in April 2007 (but very low overall)

Contact details

Ken Mulkearn020 7429 6892

ken.mulkearn@thomson.com