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Public Sector Pay Cap

Volume 783: debated on Wednesday 5 July 2017


My Lords, with permission, I will now repeat in the form of a Statement an Answer to an Urgent Question given by my right honourable friend the Chief Secretary to the Treasury in another place earlier today. The Statement is as follows:

“We all recognise that public sector workers do a fantastic job. Over the past seven years, we have seen major improvements in our public services: crime is down, with a greater proportion of police on the front line; more children are achieving higher standards at school and going on to apprenticeships and university; and our NHS is looking after more people than at any time in its history. Government pay is designed to be fair to public sector workers who work so hard to deliver these strong public services, but we must also ensure we are able to provide those public services on a sustainable basis for the future.

In many services, workers have received additional pay to the 1% national increase: teachers had an average pay rise of 3.3% in 2015-16; more than half of nurses and other NHS staff had an increase of over 3% in 2016; and military service personnel saw an average additional increase of an average 2.4%. Salaries in the public sector remain comparable to those in the private sector and, in addition, many benefit from higher pension entitlements. They also benefit from the rise in the personal tax allowance, worth £1,000 a year to a basic rate taxpayer.

We are currently completing the pay review process for 2017-18. The Government have set the remit for the pay review bodies and they have made recommendations. We have accepted the pay review recommendations made for doctors and NHS staff and the Armed Forces. We will be looking very carefully at the recommendations on the remainder, and making determinations in the usual way. As the Chancellor said on Monday, our policy on public sector pay has always been designed to strike the right balance of being fair to our public sector workers and fair to those who pay for them. That approach has not changed and the Government will continually assess that balance”.

My Lords, I thank the Minister for repeating that Answer, although I regret its tone and what it shows about the Government’s attitude towards public sector workers. This is clearly an extensive and complex issue and I am therefore delighted that my noble friend Lord Haskel has managed to secure a debate on this very matter next Thursday, when we will have an opportunity to go into it in more detail.

The specific question that I put to the Minister today relates to the terms of reference of pay review bodies. Can the Minister tell the House whether those bodies are required to have regard for government policy with its 1% cap? If the answer is yes, surely the publication of such reports is little more than a publicity stunt.

The answer to the question is yes, but it is not a publicity stunt. These are serious matters that are considered very carefully, as has been the case on many occasions for a long time. Public sector pay is set out in the Budget and that advice is contained in recommendations that are sent to the independent pay review bodies. They make their recommendations and then the Government respond, normally by way of Written Ministerial Statement, as we have done already. The situation in which we find ourselves is one of significant debt. It is worth remembering that the interest that we pay on our debt would cover the NHS pay bill in its entirety each year. These are not therefore inconsiderable matters; we ought to bear them in mind and, at the same time, try to strike the balance between fairness to those public sector workers who do so much in our society and country and having regard for the taxpayers who are paying their salaries.

My Lords, lifting the 1% public sector pay cap has been Liberal Democrat policy since 2015. Does the Minister agree that the pay cap was brought in to prevent losses and deflation at a time of fiscal crisis? It was never intended to be prolonged and to continue into a period of high employment and inflation and, therefore, should be ended.

I seem to remember that when we were in coalition with the noble Baroness’s party, there was in fact a pay freeze for two years, which was then loosened to a 1% cap. We now want to move forward: there needs to be public sector pay restraint but we want to make sure that, through progression pay and other benefits, public sector work is recognised and rewarded.

Does my noble friend agree that the surest way to higher pay for all, including in the public and the private sectors, must be through higher growth and lower inflation? Is not the quickest way to higher growth efficient and systematic control of all public expenditure programmes and lots of new enterprise and new investment? Is it not time for some new language to explain that simple fact?

My noble friend has explained it rather well. Maintaining a good solid economy is good for the economy. It controls inflation and interest rates, which are at an historic low. It has contributed to the fact that we have record levels of employment and has also enabled us to cut taxes for some of the lowest paid, taking 1.3 million people out of tax altogether.

My Lords, the Minister says that public pay is a balance between the pay to the individual in the service and what the individual citizen feels is fair. How have the Government assessed what the view of the citizen is as regards National Health Service staff?

On that specific point, the Institute for Fiscal Studies has reported that public sector workers earn on average 13% more than those in the private sector. Secondly—this is very important—the purpose of the pay review body is to make sure that we continue to attract people into the public services and deal with employment. That is why it is interesting and helpful to note that a public sector pay review body has said:

“We do not see significant short-term nationwide recruitment and retention issues that are linked to pay”.

My Lords, as one who has from time to time found himself at odds with government policy, will my noble friend tell his colleagues in the Cabinet that we do not expect them to have their debates in public?

I was just about to say that was above my pay grade and then I realised that was probably not the right term to use. The Chancellor set out the policy on public pay in the Budget. That continues to be the case. We listen very carefully to what the review bodies say and watch very carefully to see the impact that has on recruitment. That policy will continue.

My Lords, further to the excellent question by the noble Lord, Lord Cormack, when you have the Health Secretary, the Environment Secretary and even the Foreign Secretary publicly campaigning against the policy of the Chancellor of the Exchequer, what does that do for the authority and standing of the Government? Is not the Cabinet a rabble?

Certainly, the Cabinet is not as the noble Lord describes. The reality of all these things is that we do not have a Cabinet of clones; we have a Cabinet of individuals—a lot of individuals who care very passionately about the areas for which they are responsible. I declare an interest as a Minister for International Development, about which I care very passionately and on which I might occasionally be prepared to make my case. But the fact of the matter is that the collective government policy is as set out by the Chancellor in the Budget. We listen carefully to the independent pay review bodies.

My Lords, does my noble friend agree that there is a great deal of support for the view implied in the question of my noble friend Lord Cormack? However, does he agree that perhaps we are moving towards a moment when it might be right to consider raising taxation to deal with some of the problems being discussed today?

I am not sure that I agree with my noble friend in that respect because the way that we have raised tax thresholds, particularly for lower-paid workers, has meant that on average they have benefited by an additional £1,005, which is a significant increase to their salary. Further, there is the increase in the living wage, with the equivalent of a 4.2% increase for the lowest paid. Therefore, I think there are other mechanisms by which we can ensure that people’s pay and conditions improve without resorting to raising taxes.

My Lords, is it sensible for the Government to continue to put their faith in growth in the economy when today’s abysmal news about productivity demonstrates that it is bound to fail? Our productivity now is lower than it was a decade ago.

That is why we have said that productivity is a key target. But just last year we had the fastest-growing economy in the G7. We have seen incredible growth, otherwise we would not have employment at record levels in this country, with an additional 3 million people in work. Part of the reason is because we have kept a tight grip on the public finances and have seen the deficit reduced by two-thirds. These are important contributions towards maintaining confidence in the economy going forward. However, I accept that we need to work much harder on the area of productivity.

What would the Minister say to the public sector workers who are told that there is not enough money to pay them a decent wage, while at the same time the Government can find £1 billion to give to the DUP?

We would say to those people that we have independent pay review bodies which look at these matters. On Northern Ireland, there are historical challenges. Personally, I think that securing stability for the Government going forward is an important part of maintaining that path to growth, enabling us to pay down on the debts and ensure that salaries for both the public and private sectors increase in the future.

My Lords, I am afraid that my noble friend omitted to correct the noble Lord opposite, who talked about £1 billion being given to the DUP. No such sum is being given to the DUP—it is being given to the people of Northern Ireland, to improve standards of living in Northern Ireland.

My Lords, I will return to the Minister’s point about productivity. I have raised questions previously about the extent to which public servants are being encouraged to work and change their productivity and to find ways in which they might be rewarded. Can the Minister say whether any instructions are being sent to the pay review boards about this, to search for better productivity? There may be an opportunity for more money to be paid to public servants if productivity can be linked to their performance, and this may be a way out of the impasse we find ourselves in.

We look at that constantly. When I was at the Home Office we looked at that with regard to the police, as reducing bureaucracy improves practices and efficiency within the police force. We were able to maintain levels of front-line policing while at the same time we saw crime falling to record lows. So all these things can be looked at and improved.