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Public and private sector pay – thoughts for the future

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

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Public and private sector pay – thoughts for the future

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  1. Public and private sector pay – thoughts for the future Ken Mulkearn, Editor, IDS Pay Report, Pay in the Public Services 1 December 2007RCN Stewards National Conference

  2. 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...

  3. 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

  4. 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

  5. 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

  6. 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

  7. Public sector employment levels

  8. Outcomes of policy (2)

  9. 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)

  10. Relative earnings growth

  11. Ave earnings for key public sector jobs

  12. 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?

  13. 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

  14. 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

  15. ‘Core inflation’

  16. Inflation and pay settlements

  17. 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?

  18. 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

  19. 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

  20. 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)

  21. Contact details Ken Mulkearn 020 7429 6892 ken.mulkearn@thomson.com

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