Who's writing the script?

Tweet I'm sure that there was an episode of Yes Minister in which Sir Humphrey explained to the hapless Minister how he could gain a lot of public credit for stopping a certain policy from being implemented.  The Minister's response was to say that the Government wasn't intending to do that anyway, so how could he stop it?  Ah, said Sir Humphrey, but if you leak the fact that the Government might be thinking about it, you can then launch a campign to stop it, and it's a campaign which you're certain to win.

If that wasn't an episode, then it certainly deserved to be.

There's more than a passing resemblance between that scenario and the Lib Dems' 'campaign' against regional pay.  Perhaps they're using the same script writer?

More on regional pay

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There was an interesting little sentence in the Treasury’s evidence backing up the issue of regional pay for last week’s budget.  It said “the public sector pays more than is necessary to recruit, retain, and motivate staff in some areas”.  In some ways it reveals a lot about the thinking and ideology behind government policies (and let us not forget that Labour also wanted regional pay when in government).

At one level, it displays an almost incredible degree of double standards.  The higher-paid, we have been told incessantly, have to be highly paid to reward their efforts; but it seems that the lower-paid should be employed for the lowest rate at which their labour can be purchased.  If we were to employ the same standards at both ends of the spectrum, the income gap would be a great deal smaller.  Does anybody really believe that we couldn’t “recruit, retain, and motivate” bankers (or politicians, for that matter!) for lower salaries than they’re currently paid?

At another level, it’s merely an obvious statement of a classic concept in economics – employers will seek to employ labour at the minimum pay for which their labour can be purchased.  The counter concept is that labour should seek to extract the maximum wage that it can obtain from employers; balancing the two is a major part of what collective bargaining is all about.

In one sentence, however, the government have effectively abandoned any pretence at neutrality in the capital vs. labour equation; they are coming down very firmly on one side.  Whilst, in context, this applies only to employment by the public sector, I cannot believe that they wouldn’t be guided by the same principle in more general terms; nor that other employers won't take their cue.

Perhaps we shouldn’t be surprised at that, but I can’t recall any government having previously stated so clearly and explicitly that it is in favour of lowering wages to the minimum level at which staff can be attracted and retained, as a matter of policy.  Not during the post-world war 2 consensus, anyway.

Little by little, over the past 30 years, the gains made by organised labour in the past have been eroded, by successive government of both colours, in the name of progress and flexibility.  The power of capital has increased while the power of labour has decreased.  Regional pay, on a rationale like this, is another step along the same road.

Regional pay - will he, or won't he?

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We will very shortly know whether the Chancellor will or will not propose the introduction of Regional Pay as part of his budget.  The mood music has been confusing and changeable over recent days; the current balance of opinion seems to be that it will not be introduced after all.

If that turns out to be true, no doubt some will heave a great sigh of relief.  That looks premature to me, however.  Given the regularity with which the idea has been floated, by Labour and Conservative-Lib Dem governments alike, I think we can take it as read that our real masters – the senior civil service – are committed to the idea and will continue to press whoever happens to be in government at the time to introduce the concept.  History suggests that they’ll probably get their way eventually; this is not an issue which is simply going to go away.

There are good reasons to oppose it, of course.  Not only is it a direct – and almost certainly deliberate – weakening of hard-won rights to collective bargaining and equality of treatment of employees, it is also a mechanism for reversing the fiscal transfers which are inherent in the current unified approach.  It is, in short, a mechanism by which GVA and wealth are removed from the poorest areas and transferred to the richest.

It does however leave those of us who support independence with something of a dilemma, because it is inherent in our position that wage levels in the public sector should be set in Wales rather than for the UK as a whole, and it is easy to see why opponents suggest something of an inconsistency here.  Whilst there might be a difference in the underlying principle between the introduction of regional pay set at a UK level and the devolution of pay rates to Cardiff, the potential impact on individual pay packets may not look that different.

In the short term, devolution of power to set wages would almost certainly offer better protection for public sector employees in Wales than would be available for those in the poorer areas of England; it seems certain that the Welsh Government would use such powers to maintain a level of parity.

Longer term, though, there can be less certainty. 

There are two not inconsiderable practical issues.  Firstly, if wage rates across England start to diverge, with what level of wages would the Welsh Government seek to maintain parity?  London rates?  The England average?  Some sort of notional starting point enhanced by inflation?  The second is the question of impact on budget.  I don’t doubt that the UK Government would ‘adjust’ the Barnett formula based on what pay rates would be if they were set in London; maintaining higher pay rates than that would inevitably impact on other budget areas.

Then there’s the question of principle.  Why would an independent Wales – or even a devolved Wales with the right to set public sector salaries – always do so by reference to salary levels set elsewhere, rather than in line with local circumstances and needs?  As far as I’m aware, Dutch civil servants’ salary isn’t set by comparison with what is paid in Germany – why would the relationship between England and Wales be any different?

The context is different, of course.  Opposing the introduction of regional pay, and proposing the devolution of power over the issue are, in my view, the right things to do for Wales, even if they appear contradictory.  But we do need more clarity of thinking over the longer term consequences of the latter.  And the issue underlines the danger of looking at pay rates in isolation – devolving pay rates as a stand-alone matter may create as many difficulties as are resolved.

Regional Pay and GVA

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In this post on Monday, the Bevan Foundation drew attention to one of the key reasons for Wales’ comparatively low GVA – low wages.  It’s not a surprise; it’s a point that has been made a number of times in the past, but it’s a point of which we sometimes lose sight.

There are a number of reasons for Wales’ average pay being lower than the UK average.  Not the least of them is the fact that for organisations not headquartered here, the Head Office salaries – usually the highest – are elsewhere.  In a sense, that means that economic activity in Wales doesn’t contribute to GVA as much as it would if the higher salaried jobs were distributed in the same way as the lower paid jobs.  Such distribution is not exactly a practicable solution, but the effect of an uneven distribution is worth bearing in mind.

Given the way that GVA is calculated, low wages will inevitably depress GVA in any area, just as high wages would increase GVA.  So, the proposals by the UK Government to introduce ‘regional pay’ would have a direct impact on GVA.  For any area where regional pay was set at a lower value than average, GVA would apparently drop; for any area where it was set at a higher level, GVA would apparently increase.

This happens with no change whatsoever in the work people do, in the output they produce, or in their productivity; it’s solely an effect of redistributing the same amount of pay in a different way geographically.  I think we can be reasonably confident that the introduction of regional pay would see public sector pay levels reduce in Wales compared to the average, whilst they would increase in London and South East England relative to the average.

In principle, I’m in favour of redistributive policies, but in this case, the UK Government would be deliberately and consciously increasing the GVA gap between Wales and the UK average, by taking from the poorest areas and giving to the richest.

No doubt, some will cease on the resultant increase in disparity as clear proof that Wales can’t afford to control her own affairs.  But in fact, all it proves is that the measurement of GVA is a complex business, and doesn’t simply reflect poor economic performance in Wales.

I wish it were as easy as suggesting some sort of reverse regional pay, where the highest salaries were paid in the poorest areas, as a deliberate tool of policy to redistribute GVA more evenly.  But it does underline the way in which a policy of deliberately moving high paid public sector jobs from the centre to the periphery can have an impact on relative economic wealth.