How scrapping national pay rates might save lives
An interesting economic study of centralised public sector payscales from 2008 and 2010 reveals a fascinating link between uniform pay rates, and the survivability of their patients.
The study concludes that centralised pay models caused extra fatalities in hospitals.
That seems like a stretch. But the respected Professor John van Reenen and his team at the London School of economics did make exactly this finding in relation to nurses’ wages.
Broadly speaking, higher private wages mean more deaths. The argument is that in areas of high private wages, it is more difficult to recruit and retain nurses in the public sector, which means more agency staff, and therefore more deaths in public hospitals.
For every 2 per cent increase in the average private wage from area to area, the death rate increases by 1 per cent.
Here is how The Economist describes the situation.
A 2010 update of this study concludes: “Publicly run health care markets would be wise to relax the regulatory systems and allow local wages to reflect local conditions as they do in the private sector. According to our analysis, such deregulation would lead to higher-quality public services and fewer deaths”.
As one union leader tweeted at me today that paper surely makes the argument for higher nurses pay and less agency workers. But it’s not the lesson that the Treasury and George Osborne is taking as they push ahead with the beginning of the end of national pay bargaining in Wednesday’s budget.
Let me sketch out what is happening and what it hopes to achieve:
1. Francis Maude has been looking into some form of pay localisation for civil servants in the Department for Transport, Home Office, and DWP and associated agencies – 160,000 jobs in total in places like job centres and the DVLA in Swansea. These are civil servants who are coming off their pay freeze a year before most other public sector workers having started it a year early.
2. This move will not lead to a scored cost-saving at Wednesday’s budget. It is designed as a way to help local rebalancing of low growth local economies with a large public sector. In theory, if review bodies suggested it, pay rises might occur in the South East. Though I wouldn’t bank on it.
3. The government points to the fact that there is already localised pay in the Courts Service, introduced by Labour in 2008. Importantly it is not regional. For example a Band C Court Manager will get paid up to £36k in inner London, but just £28k in Newcastle and Leeds. But then, for reasons difficult that are unclear, the managers of inner city courts in Liverpool and Manchester are deemed to be “hotspots” that get paid up to £32k.
4. The government believes that rebalancing the ratio of public and private wages in low growth areas will provide a fundamental fillip to private sector recovery in those areas. Gordon Brown tried to push this in 2003. And the Conservatives tried it, effectively, with NHS trusts in 2006/7. And there was something called the Megaw Report in 1982. It’s not easy to actually pull off.
5. Pay Review bodies are currently gathering evidence in relation to these letters from the Chancellor:
So the plan is to spread this to teachers, the NHS, prisons, and senior civil servants. Only doctors, dentists, and the armed services are exempt, because they are deemed to be “recruited nationally”.
Here are some of the challenges to the idea and the execution of this plan.
6. It is far from clear that multinationals in Britain feel the need to localise pay on a massive scale. The respected Incomes Data Services carried out this empirical study for a union which said:
“Local-level bargaining is not common among national companies due to costs involved in duplication and lack of paybill control,” it says. (The report is highly recommended as it shows just how much of the public sector already have elements of regional pay). Local pay is seen in retail, at John Lewis, Argos etc.
7. The attempt to find a dispassionate way to benchmark local pay in the case of the Courts Service was not easy. “They tried various metrics, and ended up with a “felt fair” system of Zonal pay to be decided by regional managers,” said one negotiator. The basis upon which a court manager in Liverpool and Manchester is worth £4k more than Leeds is a little mysterious.
8. Union fury is already being heard. Is this a fight to pick after pay freezes, extra pensions payments, and worse retirement incomes? What about MPs?
What incentive for northern firefighters and emergency services to save London during the next riots/ emergency? What about the regional pay of executives at state-run banks?
As the Work foundation write here, one of the principal reasons for this in the past have been to erode union influence.
9. Various Conservatives will be very nervous about this, and what it will do to their majorities, and the Liberal Democrat Westcountry heartlands.
10. Treasury insiders were stressing today that this change will be “evolutionary” rather than a revolution that will see ten year pay freezes. They are treading carefully here.
FURTHER READING:
IFS Green Budget: Page 19 onwards
Policy Exchange on public sector pay fairness
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