the liberal think tank

Alison Wolf
February 2010

This report by Professor Alison Wolf, calls for sweeping reforms in pay bargaining arrangements.

Professor Wolf attacks national pay systems that ignore local differences, handicap struggling regional economies, and make it impossible for public sector managers and institutions to cope sensibly with our fiscal crisis.

As she explains

“The current national pay system may seem equitable at first blush. In fact, it is nothing of the sort. It does real damage to local services and local economies up and down the country. And it is the poorest and most vulnerable that are hit the hardest.”

Five million people employed in England’s public services should receive individual contracts from their employers, instead of pay and conditions set at national level. Otherwise, high profile reforms, such as the ‘pupil premium’, which would give extra money to schools with disadvantaged pupils, will achieve little. If these schools could pay significantly more to attract the best teachers, their pupils’ prospects could be transformed. National wage bargaining prevents this.

Schools in neighbourhoods like Tower Hamlets in London are doubly disadvantaged. They are competing with high-paying private sector employers on their doorstep (e.g. in the City of London), and with other schools in leafy suburbs offering the same salary and far less stress.
There are problems for the NHS as well.

As Professor Wolf explains:

“Where local private sector wages are high, recruitment is much more difficult and large numbers of expensive agency staff are needed to fill the gaps. Agency staff are expensive, bad for productivity and bad for patients - tightly regulated nurses’ pay and a strong local labour market have been linked to significantly higher fatality rates after admissions for heart attacks.”

For poorer regions, inflexible public sector salary scales do damage in another way: they handicap the private sector. England’s regions are as unequal today as when Labour took power, in part because employers cannot compete through lower costs. If they want good employees, they must match high, nationally set and funded public sector rates. England is, in this respect, like Germany, where the imposition of national pay-scales after unification had catastrophic consequences for the East German economy.

Individual pay scales are perfectly feasible, Professor Wolf argues. Sweden, which was once even more centralised than we are, made the shift in the 1990s. No one, including the Swedish unions, now wants a return to national scales. We in Britain should make the same change, and soon, recognising that our fiscal crisis makes flexibility more important than ever.

Download the full report