Public and private sector pay – thoughts for the future Ken Mulkearn, Editor, IDS Pay Report, Pay in the Public Services 1 December 2007 RCN 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  : New Labour government follows predecessors’ spending targets  : ‘modernisation’ period  ? : 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

Outcomes of policy (2) Key public sector pay rises in 2007 Group/organisation% rise Armed Forces Review Body3.3 (most ranks) Department of Work and Pensions2.0 (maximums); (minimums)* Doctors’ and Dentists’ Review Body2.0 (paybill) Fire Service NJC2.4 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 Body1.5 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 growth

Ave earnings for key public sector jobs

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

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 Mulkearn