Regional Pay

It has been quite remarkable to see the chorus of disapproval from Welsh Labour AMs at the idea of regional pay. Mick Antoniw and Mark Drakeford have provided the latest backing vocals to lead singer Carwyn Jones, who described regional pay as "absolutely wrong, absolutely immoral" only a few months ago.

To me, it is a perfect example of the old trick of shouting blame at the Tories and LibDems so loudly that no-one will remember that regional pay was something introduced by the last Labour government in Westminster. The subject was again raised in yesterday's First Minister's Questions. But why did no-one put Carwyn on the spot by asking him how he can be so opposed to regional pay when it is proposed by the ConDem coalition, yet keep completely silent about it when it was actually implemented by his own party in 2007? It was an opportunity missed by every other party in the Assembly yesterday ... although not missed by either Cameron or Osborne in the Commons today.

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However in this post I want to ignore the noisy bandwagon and say something which will probably surprise some people reading this. Moving away from UK-wide (or Englandandwales-wide) pay scales is not necessarily a bad thing for Wales. It all depends on the precise circumstances of what is and isn't devolved to Wales.

In simple terms, regional pay is a bad thing for Wales if those affected are paid by a department of the Westminster government, but not a bad thing if the public sector workers involved are paid by the Welsh Government or by local authorities in Wales. Two contrasting examples will illustrate this.

In the case of the courts system, court workers are paid by the Department of Justice in Westminster. When the Labour Government introduced regional pay in 2007, Wales and many parts of northern and western England were put into the lowest of the five pay bands. This means that less money has come into Wales in the form of salaries, and therefore that less money is circulating in the economy of Wales as a whole because of the reduction in what those court employees can spend locally on goods and services.

But moving from UK-wide pay scales would be entirely different in the case of teachers. Teachers are paid by local authorities, and local authorities get their money mainly through the Welsh Government (which it gets from the block grant) with some additional money raised through council tax and charges. Only a comparatively small part of a local authority's income comes directly from Westminster, as a result of the Treasury supplementing the pooled and redistributed money from non-domestic rates.

The block grant that Wales gets is based on the Barnett Formula, which is based on our population (and if that formula were to be replaced, it would probably be replaced by a needs based formula, which would be even better). Therefore the amount of money coming into the Welsh economy would be almost completely unaffected if teachers in Wales were to be paid at a lower national rate than the average in England. Teachers in Wales would of course be affected, but the Welsh economy as a whole would not be affected. One of three things would happen:

•  The local authorities in Wales would, if they received the same money from the Welsh Government as they do now, simply spend less of it on teachers' salaries and have correspondingly more to spend on the other services they provide.

•  Or the local authorities in Wales could reduce council tax, leaving more in the pockets of council tax payers, which would then find its way into the Welsh economy.

•  Or the Welsh government could give local authorities less money and instead spend more on the services it provides.

In all three cases, the total amount of money in the Welsh economy remains unaffected. The basic rule is that if a public sector employee in Wales is paid directly by a department in Westminster, Wales will lose out by the introduction of regional pay. But if a public sector employee is paid from money that comes through the Assembly (or is raised locally) moving from UK-wide pay scales has no overall adverse effect on the economy of Wales.

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This means one important thing: that the Welsh economy will benefit by more areas of responsibility being devolved to Wales.

To illustrate this, let's look again at the court workers currently employed by the Ministry of Justice who since 2007 have been earning significantly less than the English average because of the regional pay structure imposed on them by the last Labour government in Westminster, even though they are doing the same work. This is a map showing the extent of the pay bands:

     

If the administration of justice is devolved to Wales, Welsh court employees would instead be paid by a new Welsh Ministry of Justice out of the block grant received from the Treasury. The level of that block grant would need to be adjusted from what it is now, but under the Barnett Formula we would get a proportionate share of the money spent by the Ministry of Justice in England, and more if it were to be replaced by a needs based formula. England would presumably continue with the same five pay bands, with employees in London (Band 1) earning more than those in the home counties (Band 2), south central England (Band 3), the wider south and east of England (Band 4) and the wider north and west of England (Band 5). But the average for England as a whole would be roughly at the Band 3 level, and therefore Wales would get the equivalent of Band 3 included in the block grant as opposed to Band 5 ... which is the band we are currently in on an Englandandwales basis.

Therefore if the administration of justice were to be devolved to Wales, the Welsh Government could decide either to give the workers in the Welsh courts system a pay rise so that they get the same as the average in England; or they could keep them on the lower rate and spend the extra money on something else instead. It's a political decision, and that's probably what the Labour party are so uncomfortable about. But whatever they decided, more money would be circulating in Wales to benefit the Welsh economy.

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Turning now to George Osborne's budget speech, it looks certain that regional pay is going to be extended by the current ConDem government. The details are a little sparse at present, but as reported the BBC:

Some government departments will have the option to introduce more local pay for civil servants whose wage freezes end this year, the chancellor announced.

BBC, 21 March 2012

By definition, any local or regional pay that affects employees in Wales and that is determined by government departments at Westminster will be in areas which are not devolved to Wales. Therefore introducing it will have a negative effect on the Welsh economy as I described above.

We can complain all we like, but ConDem coalition has a majority at Westminster and will therefore push through whatever they want despite our objections. So my advice is simple. When the Westminster government proposes regional pay for the police, for example, the best way for the Welsh Government to avoid the inevitable negative effect on the Welsh economy will be to press to devolve policing to Wales. And exactly the same applies to every other area which is not devolved to Wales.

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13 comments:

MH said...

Someone who won't be surprised at this post is Welsh Ramblings, who made many of the same points here.

Welsh Ramblings said...

Thanks Syniadau. This is a good post and clarifies alot of the points I was trying to address.

As it stands regional pay doesn't give any new powers for Wales. But we already pay a number of our own professions nationally and we need control over those t&c's. Teachers would be a good start. Welsh national pay is the way forward. UK regional pay means undermining the Welsh economy.

Mick Antoniw is a nice guy and is principles but he doesn't seem to understand that his party's legacy has given England elite academies and foundation trusts, which can set their own pay and conditions. Labour regionalised pay.

I think there is going to be a big issue with the economics behind regional pay being pretty much proven wrong as people start to seriously look at the evidence.

It was hilarious today that a Welsh Government source was claiming that George Osborne had relaxed his proposals because of Carwyn Jones' opposition. You can't make it up!

Anonymous said...

The Wales Premiere of Four Horsemen, a film about the economic, political and environmental crisis is being screened at the National Library of Wales next Thursday 29 March.

Film includes interviews with people like Noam Chomsky, Joseph Spiglitz, Max Keizer, followed by a discussion with the producer, Ross Ashcroft.

http://www.youtube.com/watch?v=wLoB1eCJ93k

Could be something of interest to a discussion on taxation, policy and regulation (or lack of).

Anonymous said...

Interesting perspective, every cloud eh! So they would basically have to adjust the Barnett Formula to stop Cardiff getting its fair share of the spending? Which ain't going to happen!

On a totally separate matter MH, rumours in Torfaen that parents are being told that YGG Cwmbran is over-full and that even their kids currently in the Meithrin unit won't get in. They are being told apparently that they will be transported to the Varteg, or go to EM!

MH said...

Yes, Anon. The Barnett Formula is basically that in any area that is devolved, the funds that Wales, Scotland and NI get in our respective block grants must be proportionate (based on population) to what is spent in the whole of England rather than in any particular part of England.

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Not sure what to say about the situation in Torfaen. It's obviously good news that there is an ever-increasing demand for WM education, and Torfaen will be obliged to find a WM place for every child whose parents want it. If it turns out that there are spare spaces in Bryn Onnen (Varteg) then transport to that school is an option that parents might have to take. But no child can be refused a WM place.

MH said...

I've just been in touch with Torfaen and been told that there are 137 applications for WM places this September, Anon.

From the Schools Information Booklet, the admission numbers for Bryn Onnen, Cwmbran and Panteg are 30, 47 and 30 respectively ... a total of 107. So it appears that 30 more places are going to have to be found somewhere.

I'm sure Torfaen will make additional WM places available, as indeed they have a duty to do. The question is where these will be. My guess is that they will either put up temporary classrooms at one or two of these schools, or that they might even put a "starter class" in an EM school with surplus places which will eventually become another WM primary.

The logistics will be a bit of a headache, but it's brilliant news for those who want to see the expansion of WM education.

I've also been sent the results of a survey on WM childcare and holiday club provision. There is substantial demand for both. Things are looking up.

Anonymous said...

No local authority is under a legal duty to provide WM places MH. Or EM places for that matter. They are required to provide a sufficient number of suitable school places.- and suitability is not defined in terms of the language of instruction. Nevertheless, in practice, I have no doubt that Torfaen will find WM places for all those who have applied.

MH said...

Torfaen certainly believes there is a "statutory requirement" for it to provide WM education, Anon. See section 3.4 of this document. Perhaps we'd better not disabuse them.

But you are right, at least in so far as S14 of the 1996 Education Act is concerned. However they probably are under a contractual obligation in so far as they have agreed Welsh Education Schemes with BYIG; and the Welsh Government has also made it pretty clear that if LEAs don't do it, they will bring in legislation to require them to.

Anonymous said...

MH thank you for your replies there on Torfaen. it is indeed good news regarding the demand. What worries me though is not the fact that they are likely to 'find' the spaces eventually, but the number of parents who either give up the fight because they find arguing the toss about their rights against ambivalent council officials stressful and irritating and opt for EM, or the parents who end up with kids spread between schools across the borough. I know of one girl with three children, all of which are in different primary schools in Torfaen. It would worry me if my 4 year old had to travel from Cwmbran up to the Varteg in a taxi or whatever. It's just the usual lack of planning, ignore it and hope the problem goes away attitude, that we get here in the southeast.
Not to mention the numbers who WOULD opt for WM if a school was closer to them, but don't because they have to send their kids miles away for WM, when EM is a walkable distance around the corner.

Anonymous said...

The point by anonymous 00:22 hits the nail on the head. Should those concerned with WM education now be having a debate around the degree of statutory education responsibilities and strategic steer held between LEAs and the Welsh Government with a view to creating greater citizen understanding and increased graded consistency *across the country*. With the best will in the world, LEAs will never do this. How do you like your democracy and how do you like, and deal with, your mosaic-riddled WM education? It doesn't need to be like this. WG must take on more strategic steer (which does not necessarily have to mean loss of flexibility) and not hide behind a century of adhocery. Off-field to your original post, sorry.

John Dixon said...

I agree that there is a distinction to be drawn between the impact on individual employees (which is uniformly negative whether they are paid by London or by Cardiff) and the impact on the Welsh economy a a whole. But doesn't the extent to which the impact is neutral overall at a macro level for Wales in the case of devolved services depend on an assumption that the 'average' pay in England stays the same (albeit up in some areas and downm in others)?

That is to say, if the overall pay bill for staff in any category in England comes down (and I think we can assume that to be the Chancellor's assumption, otherwise how does he save money?), then isn't there a negative Barnett consequential? One can still argue, of course, that to the extent that the relevant Welsh public sector employees are paid less than the overall English average then the impact is reduced from what it might otherwise be, but it isn't, I think, eliminated.

Siônnyn said...

JD - I suppose it depends on whether the London Weighting is taken into account. It will obviously have to go, and replaced with a hike in salaries London (an other places having a weighting').

But even then, given that far more of the public service jobs in the higher pay brackets are based in London, we should do well out of the arrangement, if we have somebody a bit more numerate than Jane Hutt to negotiate for us!

MH said...

It's hard to say whether pay in the lower band areas will go down as a result of the introduction of regional pay, John, or whether the pay in these areas will remain frozen while the pay in the higher band areas goes up. I'm more inclined to think it will be the second. That will be a "saving" in real terms because of inflation, but not necessarily in monetary terms.

As for the existing London weighting, that would (as Siônnyn says) have to be taken into account when determining the England average. So this will increase the average coming to Wales for anything which shifts from being UK-wide to being included in the block grant.

This should act as a powerful incentive to devolve more to Wales. At present, Labour has resisted (or at least questioned) whether more should be delvolved to Wales on the grounds that running a separate Welsh department is likely to duplicate some of the overhead costs compared with an Englandandwales or UK-wide department. That's a fair point to raise, although the counter-argument would always be that it's better for Wales to be employing civil servants in Wales to do any particular job than to be paying civil servants in England to do it for us. (And of course in the case of the DVLA and Patent Office, civil servants in Wales are already doing a job for the whole of the UK, so it's swings and roundabouts.) However the introduction of regional pay would be a game-changer, particularly for those departments in which the majority of staff were spread over the country rather than concentrated in just one place. If Labour can grasp that point, we should see them start to join us in pressing for more to be devolved to Wales, simply because we in Wales will get more money than we otherwise would.

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