1. Poverty pay: How public sector pay fails deprived areas September 14 th, 2007 Stephen Evans Chief Economist Social Market Foundation

2. www.smf.co.uk The context Over the last decade, public sector pay has grown more quickly than in the private sector This was partly catch up after slower growth, partly to attract new workers into expanding public services and partly to ease recruitment and retention problems Yet staff shortages remain, particularly in deprived areas, and services remain worst in the areas the need them most Public spending growth is about to slow. So how do we use that money most wisely?

3. www.smf.co.uk The geography of public sector labour: Regions

4. www.smf.co.uk The geography of public sector labour: Local areas

5. www.smf.co.uk Number of GP applicants per post by area type

6. www.smf.co.uk Policy options: Since 1997 Numerous attempts to reform pay structures and levels with a stated desire to tie this to improved standards. Fair to say success has been mixed. Eg Agenda for Change. At the same time, stated desire for more localised pay. But only really come to fruition in London weighting … … and some local flexibility. Eg long-term pay bonus to unfilled posts under Agenda for Change. Yet labour shortages still remain along with inequalities in provision.

7. www.smf.co.uk Policy options: Looking forward Full liberalisation: Efficient in theory, but often doesnt work in practice. Eg Nationwide. Recruitment incentives: Can aid recruitment, but what about retention? And have not yet proved sufficient to overcome long-term costs of working in deprived areas. Relocation: Eg Lyons Review. But, many jobs where location is critical. So doesnt help with doctors, nurses, teachers etc. Regional pay: Could be based on cost of living differences or private sector comparisons. But doesnt tackle real cause which is local working conditions. Public-private comparisons dont always exist. Deprived area supplements: But link between deprivation and working conditions not always simple. Eg hospitals.

8. www.smf.co.uk Another option: Zonal pay Already employed by private sector, eg large retailers such as Tesco Step 1: Negotiate basic pay structure Step 2: Negotiate a parallel set of higher pay spines Step 3: Individual institutions move between zones depending on their current ability to recruit staff Zone 1Zone 2Zone 3Zone 4Zone 5 M1 £19,641 £20,623£21,605£22,587£23,569 M2 £21,195 £22,255£23,315£24,374£25,434 M3 £22,899 £24,044£25,189£26,344£27,479 M4 £24,660 £25,893£27,126£28,359£29,592 M5 £26,604 £27,934£29,264£30,594£31,925 M6 £28,707 £30,142£31,578£33,013£34,448 Table 1: Sample pay zone structure for teachers

9. www.smf.co.uk Movement between zones Three potential problems (and solutions): 1.Definition of recruitment problems critical: But a number of candidates – vacancy rates, turnover, temp staff rates 2.If every institutions movement were part of negotiations, could be inflationary and bureaucratic: But negotiate rules, apply automatically and independent appeals 3.Would be easier to move someone up a zone than down: Again, (rules for) moves down must be an assumption included as part of national bargaining

10. www.smf.co.uk Conclusion Efforts to reform pay to date have failed to end (quantity and quality) labour shortages in areas that need public services most Zonal pay would be responsive to shortages regardless of the reason for them It would use existing data on recruitment and staffing, with a lower deadweight cost (ie not higher pay for everyone) Number of challenges, such as movement between zones and avoiding rewards for failure But the rewards could be great, with a better return on funding and improved quality services in deprived areas.