Above-inflation pay awards for public sector workers

The UK government has agreed to implement above-inflation pay awards recommended by independent pay review bodies covering 1.3 million public sector workers. The awards will take effect in full from 1 April 1999, in contrast to the staging of public sector pay increases in recent years. Trade unions argue that the awards will do little to address problems of staff recruitment, retention and motivation, while some public sector employers are concerned at the affordability of the increases.

On 1 February 1999, the government announced that it had accepted in full the recommendations of the five independent pay review bodies which recommend pay awards for 1.3 million public sector workers including teachers, nurses, doctors, judges, the armed forces and senior civil servants. The review bodies recommended above-inflation pay increases for these groups, with an average increase of 4.1% from 1 April 1999. This average figure disguises wide variations both between individual review bodies and also within specific occupational groups such as teachers. These variations reflect the review bodies' concerns to tackle the severest recruitment and retention problems and to reward adequately the responsibilities of groups such as primary school head teachers. Consequently, some workers did far better than others.

The government's decision to implement the review bodies' recommendations in full marks a break with the practice of the previous five years whereby awards have been staged over the year to reduce the overall paybill. This practice has been condemned by trade unions and the review bodies have commented on the adverse effect that staging has had on staff morale.

The context

The 1999 pay award recommendations come at a crucial juncture for the public sector. When the Labour government was elected in May 1997 many commentators predicted that public sector pay would create problems for the new administration (UK9704125F). It was assumed that public sector workers would aim for substantial pay rises from a government more sympathetic than its Conservative predecessors to the relative decline of public sector pay. In addition, improving the quality of public services by reducing health service waiting lists and class sizes for primary school children formed a central component of the Labour Party's election platform. These manifesto commitments implied substantial investments in public services.

However, the Labour government has been very careful not to raise employee expectations and has taken several measures to reassure business that public spending would be kept in check. In the run-up to the May 1997 election, the Labour Party committed itself to the Conservative government's public expenditure plans for the first two years that it was in office. Public sector pay increases were to be funded from within existing budgets through efficiency or other savings. The June 1998 "comprehensive spending review" outlined Government spending plans which would increase current expenditure by 2.25% in real terms from 1999 to 2002 and announced substantial increases in public sector investment for service improvements (including employing new staff) but stressed that public sector pay would remain tightly controlled (UK9807140N).

However, by late 1998 this policy was under severe strain. Five years of economic growth and continuously declining unemployment indicated that labour market conditions would require a loosening of the tight constraints on public sector pay. In early 1999, the government was faced with continual bad publicity about public services, especially concerning waiting times in hospitals. A particularly worrying aspect has been that serious problems of recruitment and retention have emerged in the education and health services, and a mass of survey evidence indicates increasing employee stress and declining morale. Moreover, public service trade unions have remained suspicious of the government's intentions and these concerns have been reinforced, for example, by its plans to extend performance-related pay in the education sector (UK9812169N) and the continuing use of the private sector to fund public services, termed the "Private Finance Initiative". The Labour government was therefore under considerable pressure to demonstrate its commitment to investing in the public services by implementing the recommended pay awards in full and curtailing the loss of qualified nurses and teachers from the public sector.

The review body recommendations

Each year the pay review bodies, whose members are appointed by government, take evidence from trade unions, employers and the government, collect information on pay movements and other relevant issues (eg recruitment and retention data) and make recommendations which the government is free to accept or reject (UK9702104F). The review bodies are generally concerned only with recommendations about pay levels and other monetary allowances, with conditions of service still subject to collective bargaining. The decisions of the review bodies affect not only those staff covered by their remit but also have a significant influence on the outcome of collective bargaining over the pay of 4 million other public service employees.

The most attention has focused on the position of nursing and teaching staff. Their respective review bodies pointed out in no uncertain terms the difficulties of attracting new recruits into the nursing and teaching professions and thus recommended big increases. With inflation standing at 2.5%, qualified nurses were awarded a pay rise of 4.7%, but the minimum starting salary for nurses will jump by 12% to GBP 14,400 from 1 April 1999. The other big winners were primary school heads who gained a 9% increase, taking their minimum starting salary to GBP 33,552. This is in contrast to the basic 3.5% increase for secondary head teachers, their deputies and school teachers, although head teachers and deputies will receive additional increases when they are placed on their new salary structure later this year. Finally, the review bodies covering the armed forces and the judiciary recommended that salaries should be increased by 3.5%. Members of Parliament and senior civil servants had to content themselves with a 2.8% salary increase, although the actual increase will be higher because of the effect of previous years' staged increases, or because of the opportunity to gain additional performance-related increases in the case of senior civil servants.

Commentary

Some commentators have suggested that the above-inflation pay increases and the government's decision to discontinue staging the awards may raise expectations about future review body awards which conflict with the government's emphasis on affordability and prudence in public expenditure. In addition, the differential awards between and within occupational groups have received a mixed reaction from trade unions with, for example, doctors unhappy about their 3.5% increase. The nursing unions argued that the headline increase of 12% will apply to relatively few staff and will do nothing to retain existing experienced staff or confront problems of low pay amongst nursing assistants. Health service employers have expressed concern about the affordability of the settlement and suggested that the pay rises would need to be funded by scaling back service improvements.

The 1999 pay awards take place within the context of a broader review of public sector pay structures. During 1998, the government amended the terms of reference of all five review bodies, which led the Nurses' Review Body to reiterate its independence and argue that "it cannot be constrained to a pre-determined envelope of money". The overall aim of the government is to increase the flexibility of public sector pay systems and to reward responsibility and performance. In the National Health Service (NHS), the government has set out proposals for a comprehensive reform of the pay structure with an ambitious timetable for implementation. For teachers, outline proposals to reform the pay structure have proved controversial because of plans to link pay to individual performance (UK9812169N). It is clear that far-reaching changes in salary structures for teachers and health service staff are in the pipeline. However, it is uncertain whether these reforms will solve the recruitment and retention problems in these services which stem from increased workloads and pressure to fulfil government targets as much as from dissatisfaction with pay levels. (Stephen Bach, IRRU)