Northern TUC guest post: Regional Pay risks a spiral of decline

Guest post by Neil Foster (not Stephen Crossley)

George Osborne’s Budget announcement that the Government is seeking to support regional and localised public sector pay risks institutionalising the region as an area of low pay and widening inequalities. The Chancellor’s decision to back this proposal has been taken despite no independent economic analysis on the long-term impact of repeatedly reducing real terms pay on low pay areas. It is a policy that should worry and be opposed by all those in relatively low pay regions and who have a positive vision of increasing prosperity and reducing poverty.

The theory, supported by some Conservative ministers along with some right-wing newspaper commentators is simple, but flawed. The argument is that in regions such as the North East the entire public sector should sustain further real terms pay cuts because they are ‘crowding out’ the growth of the private sector. It is said that nationally determined public sector pay is on average higher than private sector workers and it is this which prevents firms from recruiting. It overlooks the fact that many low paid public sector jobs have been outsourced to the private sector or that many jobs cannot be found in the private sector. It ignores that fact that many national private sector firms also use national pay bargaining. Comparisons are weak since many of jobs in the public sector do not exist in the private sector. However the fundamental flaw in all of this is that this ‘crowding out’ theory could ever only have a significant impact in an era of full-employment where most people have a wide range of job offers to pick and choose from.

Anyone in the North East can look out of the window and see we are a million miles away from a scenario of full employment. We currently have the highest unemployment rate of any region in the UK with 9 jobseekers per job vacancy and the public sector shedding 2,000 jobs per month. Private sector employers repeatedly report huge quantities of job applications. Where this is not the case, it is down to a specific skills shortage which making nurses, teacher and social workers poorer will not solve. Instead this policy represents another round of austerity on ordinary public sector workers who are being asked to pick up the tab for a global banking crisis they did not cause. Prior to the crash, between 2003 and 2008 the growth in the North East’s private sector employment was in fact 9.2% and stronger than the public sector at 4.1%. Properly funded public services are the friends of private sector growth, not its enemy.

The consequence of regional pay will be to compound many of the problems facing low pay regions and risk a spiral of decline with an ever-increasing squeeze in the living standards of three million workers in low pay regions in England and across Wales. It won’t make anyone working in the North East better off but will actually threaten high street jobs as more and more wages are reduced and withdrawn from the economy. The region is facing a prolonged demand crisis caused by increased hardship and very low consumer confidence. Taking more money out of people’s pockets will not help kickstart growth. Investment in skills, infrastructure and growth industries to generate jobs will.

It may not be a complete surprise that this regional pay policy is being actively promoted and supported by the right-wing Policy Exchange think tank. In 2008 they published a controversial paper claiming that Northern cities didn’t merit regeneration and were ‘beyond revival’. Instead those in the North should be expected to ‘migrate’ to the South. Enthusiasm for regional and public sector pay may be a consequence of this thinking – it certainly incentivises key public sector workers to desert poorer low pay economies and work in the wealthier areas instead. The impact on teaching could be most severe. Now more than ever we need children and young people in the North to have fair access to the best quality teachers and services to overcome barriers and have an equal start in life. Yet instead there is increased risk of a brain drain where our region finds it harder to retain and attract the best key public sector professionals.

Looking beyond the features of this policy, the thinking behind this and other Government measures reveals a miserable vision where the bulk of UK is configured to service the interests of just one region. The only region outside of London that will in effect be exempt from regional pay policy is also the most prosperous – the South East of England. Many will ask how it can be acceptable that the pay of Northern nurses or Yorkshire’s youth workers should be in any way determined by how many stockbrokers share their postcode. The public are not convinced by it either. A recent UK opinion poll by Survation showed that only 28% of voters saw regional policy as fair with just 17% believing it would help regional economies outside of London and the South East.

The Northern TUC with unions, business figures and council leaders believe this policy is divisive and damaging. It will make it harder for the North East to create jobs, growth and prosperity we need and deserve. Regional pay isn’t just another Government attack on local public sector workers, but represents an active discrimination against the North, Midlands, South West regions and devolved nations. Our region has a lot to lose if this policy is allowed to go ahead, but the most gain if we can stop it. As a country we need to unite and all pull together. It’s time for the Government to play fair and pay fair for both current and future generations.

Neil Foster

Policy and Campaigns Officer

Northern TUC

@northerntuc

To support the campaign please email nfoster@tuc.org.uk for more information and follow @payfairnow on twitter.