Regional public sector pay: No evidential support and could cost almost £10bn

Even assuming that private sector jobs were created as a result of holding back public sector pay, the economic cost would be £2.7bn or 0.12% of GDP per year.

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Alice Hood is a senior policy officer at the TUC where she works on public services issues

A report published today by the TUC debunks the government’s arguments for localising public sector pay and shows the devastating impact it would have, costing the economy up to £9.7bn per year.

sad-nurseWe hope the results will prove the final nail in the coffin for this discredited and damaging idea. The New Economics Foundation (NEF) report for the TUC analyses the government’s arguments and the latest academic evidence.

It finds that the differences between public and private sectors mean that pay structures are ‘barely comparable’ (more on this here), that private companies do use national pay structures, contrary to claims of great local variation (more here) and most importantly that the ‘crowding out’ concept is highly contested and not supported by the evidence.

The researchers modelled the economic impact of localising public sector pay under a series of scenarios.

These ranged from an approach which accepts the government’s argument that crowding out exists, to the opposite end of the spectrum with no crowding out at all. They also factored in how reductions in disposable income would affect trade between regions.

The exercise found crushing economic costs in each region of England and in Wales and across the economy as a whole.

Even in the ‘best-case’ scenario, assuming that private sector jobs were created as a result of holding back public sector pay, the economic cost would be £2.7bn or 0.12% of GDP per year.

Contrastingly, in a scenario where there is little or no private sector employment response to a fall in public sector pay the annual net costs at a national level would reach £9.7 billion, equivalent to 0.43% of UK GDP.

The table below shows the best and worst case scenarios for each of the English regions and Wales:

Annual-net-GVA-impact

The Pay Review Bodies have been investigating the issue over the past six months and three of them including the NHS body will report to the Treasury this week, with a fourth (the School Teachers Review Body) reporting in the autumn. But their brief focuses on issues around the broad design and implementation of such a policy, not the economic impacts.

Recent polling for the TUC found that 75 per cent of respondents thought it was important that the government should conduct and publish an independent study on the economic impact of the policy before deciding whether to proceed. As far as we know, this is the first attempt to properly model the economic impact of the proposals.

 


See also:

The coalition MPs in the public sector regional pay danger zone 19 Jun 2012

Poll: Voters caution against risky regional pay 18 Jun 2012

Regional pay is “Tory code” for slashing pay of the poorest NHS workers 24 Apr 2012

The 12 practical problems of localising public sector pay 25 Jan 2012


 

Politicians from all parties have spoken out on the issue in the past few months, concerned about the economic impacts of taking more demand out of the struggling economy and the unfairness of paying nurses and teachers less simply because of where they live and work.

More recently, the government has rowed back a little, saying “there will be no change unless there is strong evidence to support it and a rational case for proceeding”.

Today’s report shows the strength of the case against. It’s time for them to put a stop to this destructive idea.

 


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15 Responses to “Regional public sector pay: No evidential support and could cost almost £10bn”

  1. Anonymous

    It’s going to be replaced with no pay.

    Government has run out of cash. It’s hidden the vast majority of its debts off the books.

    So taxes up
    Services down
    Debt payments (pensions) defaulted on.

  2. Unite the union

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  3. John Houghton

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  4. Regional Secretary

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  5. june

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  6. Barryfunite

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  7. Anthony Kemp

    Regional public sector pay: no evidential support and could cost almost £10bn, writes @Alice_Hood: http://t.co/afGrbT9d

  8. Anonymous

    Yes, yes, you’re instant you won’t pay. Keep highlighting your plans for the 99%.

  9. liane gomersall

    RT @leftfootfwd: Regional public sector pay: No evidential support and could cost almost £10bn http://t.co/Jes2cIxr

  10. NSTUC

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  11. Notts Trades Council

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  12. Kyron Hodgetts

    TUC report by @Alice_Hood: The real impact of regional pay proposals is a £10bn hit to the economy – http://t.co/fv8mVAj9 via @leftfootfwd

  13. BevR

    RT @leftfootfwd: Regional public sector pay: No evidential support and could cost almost £10bn http://t.co/TiVHsse3

  14. Mark Smithson

    RT @leftfootfwd: Regional public sector pay: No evidential support and could cost almost £10bn http://t.co/TiVHsse3

  15. JC

    Since you’re against the idea of paying people a different rate depending on where they work, what’s your view on London Weighting? How is this different from a regional pay system?

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