Policy Exchange: National pay deals for public sector cost £6.3bn

Scrapping national pay and pension deals for public sector workers could save £6.3bn annually from the government's £180bn wage bill, think tank Policy Exchange has claimed.

Issued today, their report Local Pay, Local Growth argues the public sector ‘premium’ – additional salary a typical public sector worker gains over a private sector worker in the same area – stands at an average of 7% per employee.

But according to the authors’ calculations, when combined with increased largesse in pensions, the total premium doubles to 14% for the average public sector worker - and in some parts of the country the premiums over private sector counterparts are as much as 25%.

Among alleged problems caused by national pay bands, the report says in high-cost areas public sector workers face lower living standards, and as a result schools and hospitals struggle to recruit and retain quality staff.

Report co-author Matthew Oakley, a former economic adviser at the Treasury said the current system of national pay bargaining ‘is bad for the economy and bad for public services’.

‘Moving to a system where local public sector employers can decide how to negotiate salaries with employees will enable top performing public sector workers to be paid more, increasing productivity and improving public services,’ said Mr Oakley.

Independent pay review boards – including those for teachers, NHS staff, doctors and dentists, prison officers, the armed services and senior civil service – will shortly report to chancellor George Osborne, outlining how pay could be made more responsive to local labour markets.

Acknowledging moves to establish regional pay bargaining would inevitably meet fierce resistance from public sector trade unions, Policy Exchange suggests savings should be ring-fenced for additional public spending aimed at boosting economic growth and creating jobs within the areas concerned.

In response, TUC general secretary, Brendan Barber, dismissed as ‘fantasy’ the report’s contention that pay cuts for public sector staff in poorer parts of the UK would be used to generate private sector jobs in the same region.

‘The Treasury would simply grab the cash - if there was any left once the cost of thousands of local pay negotiations had been absorbed,’ Mr Barber said.