Harry Fone is grassroots campaign manager for the TaxPayers’ Alliance.
On a recent visit with the TaxPayers’ Alliance to Sandwell council in the West Midlands, my colleagues and I were struck by the sheer size and scale of the council headquarters, compared to the surrounding area. It’s not just Sandwell; places like Warrington, Coventry and Newport all spring to mind. Not only does it demonstrate that the public sector may be somewhat out of control, but also the economic problem of crowding out – where the private sector struggles to compete in the recruitment of staff.
This is part of the issue with a national pay bargaining system, creating uniform public sector pay rises. The current system does not account for regional differences in private sector incomes and the cost of living. For example, the West Midlands has one of the lowest consumer price levels in England but the fourth highest pay for senior civil service staff. At a national level this one-size-fits-all policy is costing taxpayers around £20 billion a year in pay disparity between the public and private sectors.
A system of regional pay bargaining would help tackle this. Reforming regional pay would not only save billions on the one hand (almost £9 billion in fact!), but on the other, would bring a tremendous economic boost from a reinvigorated and more competitive private sector. Median gross pay was 14.1 per cent higher for public sector staff compared to those in equivalent private sector positions in 2021. Interestingly, or maybe unsurprisingly, depending on your point of view, Scotland had the highest median gross pay difference of 31 per cent.
It’s not just the gap in pay that’s a concern either. While the public sector saw an annual increase in median public sector pay for the UK of 5.8 per cent in 2021, the private sector suffered a fall of 2.3 per cent. Taking all this into account it’s not hard to see why the public rather than the private sector becomes the dominant employer in a given region.
As our policy analyst, Darwin Friend, makes clear in his analysis of the current pay scheme:
“National public sector pay rates artificially and disproportionately inflate labour costs for other organisations competing in the same market. When these costs are inflated beyond the local cost of living, it has a pass through effect on the private sector by reducing investment and employment in that region.”
This very much tallies with the TPA’s experience in Sandwell and indeed the data backs up our anecdotal observations. Regions such as the North West and West Midlands both have unemployment rates over 4.5 per cent. The latter was the only region of Great Britain to have negative growth per head in 2019. Regional pay bargaining can help narrow this gap by making pay packets relative to the cost of living in each region. So pay rises would be lower in areas where costs are less. The private sector would finally be able to compete on an even footing.
As we’ve consistently shown with our annual Town Hall Rich List, claims that council finances are cut to the bone don’t hold water. Similarly, arguments by town hall PR teams that they have to pay top whack to get the best people are nonsensical. They’re already paying an unnecessary premium and in many cases not getting bang for their buck.
Like we’ve seen with commercial property investment, councils seem to be constantly muscling in on the private sector rather than focussing on their core duties. Local government employees have significant pay and pension benefits over their counterparts in the private sector. We need a fairer pay system that will support regions and encourage more private investment to stimulate economic growth. Then that really will be levelling up.
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