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Public Sector Pay Cap

Volume 783: debated on Thursday 13 July 2017

Question for Short Debate

Asked by

To ask Her Majesty’s Government whether they intend to review the one per cent cap on public sector pay.

My Lords, we have been through difficult times these past few weeks. The response of our police, fire and ambulance services, our security and social services, our hospitals and our doctors has been absolutely outstanding and inspirational. But when we realise that, because of pay restraint, their earnings have effectively decreased in recent years, some of us feel a little bit awkward—not to say hypocritical. That is why in recent weeks, this topic has generated lots of heat but very little light.

As a result, I thought that noble Lords on all sides of the House would welcome a more measured debate that generates more light than heat, because these events remind us how much we depend on our public services. In 2015, the Chancellor announced that the Government would fund public sector workforces for a pay award of 1% for four years. In the debate on the Queen’s Speech, the Government voted down a Labour amendment to end this 1% pay cap. Self-inflicted heat was generated when, despite this, anxious Ministers concerned about recruitment and retention in their departments pressed for pay rises above 1%. They referred to the recommendations of the Government’s independent pay review boards. More heat is generated because of the obvious split in the Cabinet, with the Chancellor taking a firmer, more rigid view. Conservative Home adds to the heat by telling us that this behaviour is manoeuvring for the leadership of the party, and tweets create yet more heat by referring to finding £1 billion on a money tree in Belfast.

So let us see whether we can throw a bit more light on the subject. To do so, we need to know that there are eight pay review bodies, mainly covering the vocational part of the public sector, which recommend pay levels in their sectors. They take evidence and send their recommendations to the Government. They were originally created to avoid protracted disputes but, since 2010, when inviting them to make their recommendations, the Government have also told them what they expect the results to be. When you do a management course, lesson one is: do not blur the lines of responsibility and accountability. Otherwise, you cause confusion and irritation, which is exactly what has happened. Either we have pay set by the review bodies, or by the Government. The current system blurs responsibility, creates dissatisfaction and certainly does not help to produce a thriving public service.

The letter to the review bodies setting out their work for 2018-19 will soon be going out. What will it say: to review pay by looking at the evidence, or not to bother, because of a cap of 1%? In France, public service pay is determined by central government, but at least that is honest.

Many think that this dismissive attitude towards pay review bodies stems from years of ideological assault on public services: private good, public bad. But we have learned that even when public services are contracted out to the private sector, it costs taxpayers more than they think. It is estimated that nearly 1 million low-paid private sector workers actually work in outsourced public service jobs—social care, school staff and hospital service staff. Many of the contracts to supply those services were won on the basis of low pay, so it is not surprising that most of those 1 million workers rely on tax credits to make ends meet. So the taxpayer pays in the end, but from another pocket.

Lifting the pay cap may enable public sector employers to provide better value by being better employers, instead of contracting out to employers subsidised by tax credits who rely on the minimum wage.

Both manifestos in the recent election spoke of the state becoming more active: more active government. One reason why this Government have put a cap on public service pay is that productivity, on average, is static—in the public and private sectors. In his Statement last Wednesday in reply to a question on productivity in the public sector, the Minister replied in terms of growth. What he did not say is that many workers are now more expensive to employ per unit of output because of low productivity, and that is why there is a pay cap. Yet the Government have an industrial strategy partly designed to deal with this. Can we not review this strategy before the White Paper is issued, with particular reference to raising productivity in the public sector as a means of removing the pay cap?

Charlie Mayfield’s report on Tuesday, launching a movement to raise productivity through better management and skills, applies just as much to the public sector as to the private. Is the public sector working with the catapults or with Innovate UK? My inquiries say, only indirectly. I put it to the Minister that this is a much more constructive narrative than having a pay cap, and that it is within this narrative of greater productivity and improved public services that one can speak of tax rises. Surely they will be inevitable. Within this narrative, one can justify continuing to broaden the tax base, as the Government are already doing on expensive homes and flats. They can extend council tax beyond band H and bring heavier taxes on activities which damage the environment. That makes sense in this changed narrative of better public services. It makes a lot more sense than a pay cap.

Some compare pay in the public and private sectors. It is complicated but a recent paper from the National Institute of Economic and Social Research shows that, taking into account pensions and other benefits, pay restraint has meant that public sector workers have lost 12% since 2010 while private sector workers have lost 2%. So, the pay of public and private sector workers has now become more or less equal.

It was not surprising that on Monday we received a report from the education review panel drawing our attention to serious staff shortages and recruitment and retention problems. We had reports of 96,000 teachers taking strike action in the 12 months to May. We have had similar warnings in health, care and local authority services. Cabinet Ministers are rightly worried about this in their own departments, yet the Treasury’s official position is that the 1% pay cap holds.

I have tried to point out the dishonesty of and damage caused by hiding behind the pay review bodies. I have tried to point out the cost to the taxpayer in money terms and inferior public services, and how caps can lead to cuts, and I have tried to point out what can be done about it by a Government who believe in action. I look forward to hearing what other noble Lords and the Minister have to say.

My Lords, the Prime Minister called it correctly at the Conservative Party conference when she said:

“Our economy should work for everyone, but if your pay has stagnated for several years in a row and fixed items of spending keep going up, it doesn’t feel like it’s working for you”.

She was right then, but she is wrong now, as she and the Chancellor refuse to lift the cap on public sector pay. So I am very grateful to my noble friend Lord Haskel for initiating this debate and highlighting the yawning gap between words and actions. I am just sorry that not more Members of the government party are present to keep the Minister and his Front Bench colleagues company today.

It is not just public sector workers who are affected. It is evident that real earnings for the many have been falling since the financial crash of 2008. It often seems that the implosion of our banks then has led to an explosion of food banks now. British workers, according to the OECD, are languishing at the bottom of the pay increase league, and this is before the effects of Brexit are felt fully. The Government need to listen to the TUC’s campaign that Britain needs a pay rise. A decent living on offer to all public sector workers should be and must be our goal.

There was a time when the Government saw it, as part of their role, to set a good example as a good employer. That no longer seems to be the case. We have seen seven years of pay freezes and caps, meaning that on average the public sector worker is £2,000 worse off in real terms. Nurses, for example, are £3,000 worse off. The effects on morale are obvious, and the effects on recruitment and retention are becoming obvious. Just recently, we have seen plummeting numbers of applications to join the nursing profession, and a rising number of teachers are leaving theirs. A cap of 1% and an inflation rate of 2.7% is a recipe for disaster. Something must give, and it should be the cap.

A recent wide-ranging survey by UNISON found an increased rise in usage of debt advice services, pawn shops, payday loans and food banks. It is very graphic and it is certainly a sorry story. My plea today to the Government is that the cap should be lifted and there should be restoration of collective bargaining and the restoration of autonomous pay review bodies, maybe reformed a little bit—the productivity area is one they could usefully look at more than they do. The Government should also introduce a living wage for public sector workers.

It is not a question of not being able to afford a pay rise for public sector workers; we cannot afford not to give public sector workers a decent pay increase. They certainly deserve it, and we depend on them.

My Lords, I want to ask the Minister two specific questions, of which I have given him prior notice. Do the Government believe that average salaries of £275,000 for England’s vice- chancellors are justified? What do the Government intend to do to cut vice-chancellors’ pay?

I specifically refer to the University of Bath. Bath is a mid-ranking university among the UK’s 130 higher education institutions. It has barely a fifth of the income of the University of Cambridge. A majority of that income comes from tuition fees, and most of the rest from state research grants, so students and the Government have a predominant interest in the university. This year, the university is paying salaries in excess of £100,000 to 67 staff. Of those 67, 13 are paid over £150,000.

Last year, the vice-chancellor earned £406,000. This year, despite the 1.1% cap on pay for non-managerial staff across the higher education sector, the vice-chancellor’s pay rose by 11%, to £451,000. On top of this, the vice-chancellor, Glynis Breakwell, earns £27,000 from three non-executive directorships, which she apparently has time to undertake alongside being a full-time vice-chancellor. She also has a large house in the historic centre of Bath—a benefit in kind worth £20,000 a year. Put all that together, and Glynis Breakwell is paid almost exactly half a million pounds—more than three times the Prime Minister’s salary.

The University of Bath has a remuneration committee and governing bodies to decide these matters and prevent abuse. The problem is that the governing council is mired in controversy over this precise issue. In February, after an intense debate, the university court voted by the narrow margin of 33 votes to 30 not to censure the remuneration committee. However, that majority of three included the vice-chancellor herself and the very members of the remuneration committee whose conduct was in question. I have been contacted by many members of the university, staff and students. One member of the court has written to me, and has given me permission to quote his words to the House. He says:

“I find the failures of governance and unchecked self-serving senior management to be sources of nauseating embarrassment and inevitable reputational harm to a university otherwise comprised of wonderful, hard-working, and dedicated students and staff”.

If this is not a case for HEFCE and the Government to intervene, I do not know what is.

People often say that top pay is only one brick in the wall and it does not make much difference to the whole edifice what people at the top are paid. However, this is to miss the crucial point that top pay is just the apex of the pay structure, and it determines what happens across senior management within an organisation. The fact that the vice-chancellor is paid £500,000 makes possible the pay of more than £100,000 for the 66 others at Bath University whom I mentioned. Take those 67 salaries together, and the total is £8.7 million. That is £8.7 million out of the university’s budget of £283 million—a sizeable chunk. If that £8.7 million were halved, it would save £4.4 million—the budget of many secondary schools.

A final point is that the highly paid should set an example, particularly at a time of pay restraint. The only example the vice-chancellor of the University of Bath is setting to her staff is one of greed. That is not my idea of a university; I doubt it appeals to your Lordships either. So I hope the Minister will tell us what the Government will do to stop it.

My Lords, I thank my noble friend Lord Haskel for this starter debate, as I hope it is, on a very topical and important issue. There has been much publicity in the press, and during that publicity there have been a number of statements saying that public sector workers, covered by the various review bodies, have an independent review body, and that it is up to that body to say what the increase should be. That is not the case. I was formerly chair of the Armed Forces’ Pay Review Body. The Government give clear guidelines, and the review body’s report this year says that the funds available to the MoD, set out by the Government, must be taken into account.

Our Armed Forces have been limited to a 1% increase this year; we are told that that is going to be followed for the next two years, as it has been for several years now. Of course, that has had an impact. Our Armed Forces, until recently—and day after day we read about the deaths—have been carrying out their normal, day-to-day work, mainly in the Middle East and some in Afghanistan. It is wrong that we should treat them in this way, because it is not the right thing to do and because it has a detrimental impact on us as a community. It has led to voluntary departures being historically high from the Armed Forces at a time when they are operating at 4.4% below the manning levels that were set and when their targets and operational requirements have increased. Indeed, we had a Statement today about Daesh in Syria and Iraq. Our people are out there now in the RAF risking their lives, day in and day out, yet their morale is not as it should be.

We have heard from my noble friends—and I, too, regret that we do not have any contributions in this debate, which affects our country, from the other side of the House—about how the Government will not be reviewing the cap. Yet the reality is that we have a split Cabinet; some in the Cabinet feel that it should be reviewed, and they are right. In the 2016 Armed Forces Continuous Attitude Survey, just 12% thought that morale was high. If that was a private employer, a few heads would be being counted to go. That means 12% are working day in and day out, sometimes risking their lives, while knowing that the accommodation that their families are in back home is below par in too many instances. Indeed, families are complaining about what they are living in. Temporary operations and gapping and overstretch against increased targets all cause low morale. Officers in the Armed Forces have expressed concerns about the apparent inability of the MoD to say no to extra tasks, even when its people appeared to be at breaking point. Those junior officers were concerned because it would affect their career prospects if they spoke out.

We have the Armed Forces covenant and Armed Forces’ Pay Review Body, which is supposed to be independent, but its hands are tied. This is no fair way in which to treat public sector workers in our Armed Forces. That is a case that will be made continually. I know that my noble friend Lord Touhig made it in the opening debate yesterday. It is wrong; the discussion should be transferred to the Armed Forces’ Pay Review Body, which I think will do a fair deal.

My Lords, I join my voice to those who are calling for the public sector pay cap of 1% to be lifted. I apologise in advance to my noble friend Lord Haskel in that I think that I will generate heat rather than shed light. I have read the debates in another place and elsewhere, and I find it infuriating to read time and again praise rightly heaped on our public service workers, only to be followed by myriad excuses for not paying them properly or rewarding them even adequately for the work that they do on our behalf. As Shakespeare rightly wrote in King Lear,

“Nothing will come of nothing”.

My fear is that we will continue to drive people away from working in our public services, we will exhaust their good will and their vocational qualities, and we will witness public services suffering as a result. The people who work in all our public services are the weave and fibre that hold our society and our different communities together. In extremis, we rightly recognise and applaud them, but let us remember, too, that they undertake their work day in, day out, often unseen, unnoticed and unrecognised, and sometimes pilloried by a judgmental press when things and matters go awry—never more so in the case of social workers, the brunt of tabloid attacks, stereotyping and misrepresentation. Social workers are often called upon to weave the fabric of society back together.

Public sector workers operate in extremely difficult circumstances and often with diminishing departmental budgets. They work unsociable hours and carry out unsociable work that many others would not undertake. Sadly, I have witnessed at first hand when the workforce feels unrewarded, unnoticed and demotivated, when that public service crumbles into dysfunctionality.

So I call on the Government to be magnanimous and lift the 1% pay cap. We can afford it, and we can find the means, as my noble friend Lord Haskel said—and if we cannot, we must ask ourselves why. Why do we demand world-class, vital public services and expect them on the cheap? We must step up to the plate and reward our public service workers instead of relying on their good will, good faith and sense of public duty. That means a commitment to fair pay rises, too. We must no longer try and do things on the cheap. Failure to take action now, and to signal that we will match praise with financial commitment, will inflict long-lasting damage on our public services across the board.

My Lords, I want to start by making a general point about setting a five-year pay cap. It is an unsustainable policy, because it is rigid and cannot be easily adjusted according to changes in economic circumstances. When the decision was made to have a 1% cap, inflation was extremely low. Indeed, there were fears of deflation and high unemployment. Moreover, private sector pay levels had still not recovered from their downturn following the earlier economic crash. None of those conditions applies today. Indeed, the pay of many public sector employees has already been eroded by rising levels of inflation and staff shortages are occurring in key areas, such as health and education. In spite of teacher shortages and growing evidence of teachers leaving the profession, the Government have just announced a 1% award. The 1% cap is too crude a method of pay restraint; it is unfair in its impact on the public sector workforce. As several other speakers have said, it constrains what the independent pay review bodies can say, leading to a question of how independent they are.

I want to focus on one important group of public sector workers—nurses. As a member of the Select Committee on the Long-term Sustainability of the NHS, I was impressed by the evidence that we received on the central importance of the sustainability of the NHS workforce. Failure to address the interlinked issue of nurse numbers and staffing standards with pay policy poses risks to the NHS and the quality of the care that it provides.

Does the Minister accept the following facts? Between 2010 and 2017, the pay of health service workers in general, and nurses in particular, has been eroded by inflation, falling by 6% in real terms while, in the economy as a whole, it has fallen by only 2%. If the current cap continues, after inflation forecasts are taken into account, pay will have been cut by 12% in real terms for band 5 and above staff in the decade 2010-20. There is now a shortfall of nurses, particularly caring for adults, of 22,000, which is nearly 10% of the workforce. Does he also accept that the shortfall could increase to 15% of the workforce, unless there are changes in policy?

With respect to the supply of nurses, does the Minister agree that the decision to abolish grants for students doing nursing degrees has led to a large decline in applications for these courses, which has been confirmed in the latest UCAS figures, which came out just this week? Does he agree that Brexit will create further supply problems because, as far as the recruitment of nurses from Europe is concerned, there has already been a decline in the numbers wishing to come to work as nurses in the UK?

This really is a very serious situation, which is likely to lead to an unacceptable decline in the quality of care in our National Health Service, in a context where the demands on it are growing to unprecedented levels, mainly as a result of an ageing population. The situation in psychiatric hospitals, other mental health settings and learning disability settings is particularly worrying, since the percentage decline in the number of nurses there is considerably greater than in acute hospitals. The Government have pledged to attach greater priority to mental health, yet this is happening under their watch.

According to the Royal College of Nursing, just last year, in 2016-17, 45% more UK-registered nurses left the register than joined it. This puts greater pressure and stress on those who remain, who feel that they cannot do the kind of job that they want to do, and on medical staff. This in turn leads to further resignations. The NHS needs a pay policy that enables it to recruit, retain and engage the workforce it requires in order to succeed. The cap on public sector pay must be removed, and it is urgent that this happens.

My Lords, I also thank my noble friend Lord Haskel for initiating this debate.

With my union, the National Union of Public Employees, I spent a working lifetime thinking about how to help public service workers to improve their pay and conditions and how to be properly and fairly valued by the people they served. Back in 1970 when I started, with the so-called “dirty jobs” strike we thought that the conventional method of strike action, which at that time seemed to be so successful in the private sector, was the way forward. It was not until 1979 and a much bigger dispute—the so-called winter of discontent—that I personally came to the conclusion that strikes as we had pursued them in the past no longer worked. The big thing to do was not to win a strike but to win the battle of public opinion.

One good example of how this was achieved was in 1989, when the late Roger Poole led a team of negotiators into a pay round on behalf of ambulance personnel against the Secretary of State for Health, Kenneth Clarke. This dispute was not fought on the picket line but on the television screens—in every home in the country. Some 4 million people signed a petition of support for the ambulance workers. They won a 16.9% pay award—amazing—and, more importantly, the ambulance staff who were on the road took the proper paramedical status that they had always wanted, but which, sadly, they had to take industrial action to achieve. Roger Poole was voted the No. 2 man of the year on the Radio 4 “Today” programme, and Kenneth Clarke, as noble Lords would expect, crept away with good will and good grace. Why do I tell the Minister this story? Why do I want him to pass it on to his colleagues in the Government? It is because I believe that today we are in a similar position with the pay review boards. Luckily for the Minister, he is not facing Roger Poole, but he should heed the lesson: public opinion is very much against what the Government are doing with these pay review bodies. He should make clear now, if they want to make any headway, that the Government intend to lift the cap.

Unfortunately, however, this will not be enough. If the Government want to regain public support, they will have to do the right thing; they will have to show the public that they understand the pressure and hardship faced by public service workers, including the majority not covered by pay review bodies. They will have to do that by looking seriously at the stresses and strains that public service workers work under today, including in the caring and nursing professions. The Minister has only to look at the article by Dr Rachel Clarke in yesterday’s Guardian or today’s Telegraph to see from an independent, non-political perspective what people are going through in the public services. Do not listen to the politicians but to the people—they are telling the Government what they want them to do.

Before I sit down, I will give the Minister one more lesson about how to go forward and how to do something for more than the pay review bodies. He should look at how a large group of staff in the National Health Service negotiated a very good settlement in 2003. The unions were represented by a man called Bob Abberley and the Government by Alan Milburn. The unions set out to improve the pay and conditions for a large group of public service staff and also, as has been mentioned in the debate today, to improve productivity in the health service. Pay and conditions and improved productivity go together. This was the Agenda for Change, a ground-breaking agreement in the National Health Service, the principles of which could even be applied today. If I picked up the phone, I think I could get Bob Abberley to come back to help today—I do not have a more generous offer than that.

I ask the Minister to look at how these things can be done and how they were done in the past and not to squander the immense good will that has been built up between the public service workers and the community, in places such as Manchester, but shared right across the country, and assure noble Lords that, by listening to what is happening in the real world, the Government intend to take things forward, help public service workers and help the communities that they serve.

My Lords, I begin by picking up the issues raised by the noble Baroness, Lady Blackstone. She pointed out that, when the pay freeze later relaxed and the 1% pay cap was brought in, it was at a time of fiscal crisis; the economy was in dire straits and the expectation of the Government was of rising unemployment and, potentially, deflation. It was in that context that these measures were brought in. Although of course, during the coalition years, there were cuts in public services, these measures limited the number of people in the public services who lost their jobs and protected against a fair amount of unemployment. But, as the noble Baroness, Lady Blackstone, pointed out, we now live in an entirely different period. We are facing chronic labour shortages in key parts of the public sector and, because pay is now back to the same levels as the private sector, the public sector has to compete aggressively for the kind of talent that it requires to deliver the quality of services that our consumers expect. Yet our public sector workers are facing erosion from real inflation, which is now beginning to bite and is pushing up towards the 3% mark. So the set of circumstances is entirely different. As the Minister will know, there was no intention that any kind of pay restraint would continue beyond one Parliament. This surely has to be the time to completely rethink what has become a completely inappropriate policy.

I pick up on the issue raised by the noble Lord, Lord Cashman. The public sector is praised, quite rightly, in times of crisis for the heroic work that it delivers but it is certainly true—and I think it sticks in the gullet for quite a few of us—that when the Government have had a choice on where to spend money, it has not been on public sector workers. However, we have had significant cuts in corporation tax—I can never see a justification for a cut below 20%—and cuts in capital gains tax, inheritance tax and the marriage allowance. In other words, the praise is heaped upon the public sector worker but the money is shared between completely different groups. It seems to me that there is a time for the Government to align their praise with the way they manage the public finances, and that time is now.

Anyone who works with businesses knows that the ability of any sector to absorb change is somewhat time-limited. Our public services have been through a period of extraordinary change. That creates stress and problems in making further changes. To pick up the point made by the noble Lord, Lord Haskel, we need much greater productivity within our public services but it cannot be done through relentless cutting and relentless pressure. There has to be a period of time for change to be absorbed and for new ideas to come forward. The Government need to look seriously at that issue, which very much ties into their attitude on public pay. The issue of public opinion towards our public sector workers, raised by the noble Lord, Lord Sawyer, also ties into that. I suspect that that is now at one of its highest levels in many decades, as that work has finally been recognised. This creates an opportunity for the Government to work co-operatively with the public—who are in effect consumers of public services—and public sector workers to redesign a system which will work much more effectively for all of us in the future, instead of treating this as a very traditional worker/manager conflict, which is surely outdated.

Relaxing or taking off the 1% pay cap can be done without putting fiscal competence at risk. My party’s 2017 manifesto—I went through it with a tooth-comb—allowed the 1% public sector pay cap to come off, but we still balanced day-to-day spending in 2019-20 by rowing back some of the extraordinary tax cuts that had been made which had offered very little benefit. Therefore, there are ways to retain fiscal competence and to achieve what I think is well deserved—namely, the end of what should have been a short-term pay restraint.

I thank my noble friend Lord Haskel for tabling this debate and the powerful manner in which he summed up the issue before us today.

The Government’s argument seems to rest on two main pillars: first, that responsibility for public sector pay rests with the review bodies, and secondly, that the cap represents a so-called balance between fairness and affordability.

Let us take the review bodies first. Can we please start by dropping the pretence that they are independent? They are not. The Government set the parameters of their scope, therefore limiting their scope to make recommendations. As the NHS review body outlined back in 2011, when the cap was first introduced:

“Any constraints placed upon our role limit our ability to assess the full range of evidence on pay and related matters and potentially undermine the parties’ confidence in an independent Review Body process”.

It went on to say:

“During the period of the pay freeze our role is limited”.

This year, the NHS review body said not only that the,

“current public sector pay policy is coming under stress”,

but that:

“There are widespread concerns about recruitment, retention and motivation that are shared by employers and staff side alike”.

Only this Monday, the teachers’ review body concluded that:

“The number of qualified teachers leaving the profession for reasons other than retirement has continued to rise, and teacher retention rates have deteriorated, including for those with two to five years’ service. The number of schools reporting teacher vacancies and temporarily-filled posts has also increased markedly over the last five years”.

It said that this,

“creates a real risk that schools will not be able to recruit and retain a workforce of high quality teachers to support pupil achievement”.

Last week, during the debate on an Urgent Question in the other place, the Chief Secretary to the Treasury claimed that she respected the “pay review body process”. How can the Government respect the review process while ignoring such concerns?

The second argument the Government fall back on is the need for balance between what is supposedly affordable and fair. But what does this balance look like in practice? As the Resolution Foundation has shown, the Government’s version of balance will mean that some of the poorest people in our society will have 5% less annual income over the next four years while the wealthiest are untouched. How is this fair or balanced?

Apparently, though, this is not all about pay—not when the Government have increased the personal allowance and introduced the so-called national living wage. That argument does not hold up either because, as the latest report from the Joseph Rowntree Foundation shows:

“Pay increases in themselves do little to improve net incomes because they trigger reductions in working benefits, and the income level at which these reductions start has also not risen with inflation”.

Because of inflation, household income for families has fallen 2% in just a single year. Review bodies are not independent and the Government’s policy is not balanced by any definition of the word.

The public sector is the beating heart of our country. It connects each and every one of us to our friends, family and communities. It entrenches in us a sense of worth and value. Those who sustain this effort work tirelessly to maintain the services that are integral to our country. They deserve to stop being taken for granted.

My Lords, I pay tribute to the noble Lord, Lord Haskel, for securing this debate, and to noble Lords who have taken part in it. In a spirit of trying to shed more light than heat on this issue, I thought it would be useful if, rather than leading off with my set text, I went straight into trying to respond to some of the key questions that have been raised.

A number of noble Lords questioned our commitment to the public services, saying that we were very happy to pay tribute to the workers when crises arose but questioning whether we were backing that up with resource. It will not surprise noble Lords to hear me say that we pay tribute to our public services, particularly given the horrific events that we have seen in recent months. Their performance has been utterly outstanding, as has that of the Armed Forces. How do we respond to that? We respond to the Armed Forces through signing up to the 2% pledge in NATO for defence expenditure, thereby investing in the Armed Forces. We speak up for our nurses and health workers in England, where we have responsibility, through an £8 billion increase in real terms in expenditure on the health service. We have protected expenditure on schools and protected front-line policing. As a result, we have seen that crime is falling, more patients are being treated than ever before and more pupils are being taught in good or outstanding schools.

The noble Lord, Lord Monks, and the noble Baronesses, Lady Blackstone and Lady Dean, spoke about nurses and the issues around nursing. It is absolutely right that the public sector review bodies should take into account the recruitment factors here. It is worth noting that they said:

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

We have seen an increase of 13,000 in the number of nurses but there are also 52,000 nurses in training. That should be welcomed. The noble Lord, Lord Tunnicliffe, will probably not be surprised that I return to the following point. One needs to make comparisons when one talks about average pay in the public sector. The average pay might be set by a pay review body at 1% in terms of an increase but actual pay settlements in terms of pay progression have averaged between 3% and 4% in the health service. The comparison was made with other European countries. The OECD looked at the purchasing-power parity of the average salary of nurses and found that where, in the index, the UK was measured—

I can give that information. It was from the NHS Pay Review Body’s report of March 2017. It said:

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

Returning to my key point about UK nurses, where the UK is measured at 100 in the OECD index, France, which was cited, is at 84.2. Therefore, I think that average salaries bear some comparison.

I want to turn in particular to the point made by the noble Lord, Lord Sawyer, about the importance of public opinion here—a view that I recognise. The Government are seeking to balance the opinion of public sector workers with that of taxpayers, who contribute to the maintenance of our public services. Frequent mention has been made of comparisons with real wages in 2010—the noble Baroness, Lady Blackstone, referred to that. Of course, 2010 is a particular point at which to make the comparison. The noble Lord, Lord Haskel, will recognise that if you make the comparison with the situation at the beginning of the great financial crisis of 2008-09, you get a different result, because at that point there was a significant reduction in private sector pay, which has recovered recently.

In response to a point made by the noble Lord, Lord Sawyer, taxpayers’ confidence is maintained by looking at reductions in the deficit. I know that that may be greeted by groans in some quarters of the House, although perhaps I am wrong about that, but we should bear in mind that the interest that we pay on the debt—£50 billion—is equivalent to the entire pay bill for the NHS. Therefore, it is simply not true to say that macroeconomic and fiscal responsibility does not have a bearing on the public finances. However, it is true to say that at present we have record levels of employment—we have never seen them at such a high level—and that in itself leads to pressure on recruitment in the professions.

It is also true that, because we are seeking to manage the economy well, interest rates are at historically low levels, and that reduces the cost of living. The noble Lord, Lord Monks, and the noble Baroness, Lady Kramer, referred to the fact that inflation has increased to 2.9%, which is outside the target. We believe that that is associated with short-term exchange rate issues relating to last year’s decision to exit the European Union and that over time the rate will return to being within the 2% target that we want to achieve.

The noble Lord, Lord Monks, quoted the Prime Minister at the party conference and referred to equity between public service employees’ salaries and the taxpayer—a point I mentioned in response to the noble Lord, Lord Sawyer. On 4 July—that is, last week—he said, “It’s all coming out of the same pot. Therefore, you have to, as a government, have a view on how much you are prepared to spend on pay and how much you are going to spend on the day-to-day running costs of the services you provide”. That is a very fair observation and we would go with that.

The noble Lord, Lord Haskel, referred to productivity, which I recognise is important. Between 2010 and 2016, total public service productivity is estimated to have increased by 3%, with growth of around 0.5% per year. This represents a longer, sustained period of growth in public service productivity since the start of the series in 1997. We have also invested £13 billion to improve productivity, supporting Charlie Mayfield’s work, to which the noble Lord referred.

I am very grateful to the noble Lord, Lord Adonis, for having given me notice of the points he raised, and I want to make sure that they are covered. He asked a number of questions about pay. I think that the House will have been in some shock as he quoted the numbers relating to public sector pay for vice-chancellors and the specific example of the University of Bath. The answers may not surprise him but I put them on the record. Universities are independent and autonomous institutions, and are responsible for setting the pay for their staff. As such, government does not have pay controls in place for senior university staff. The Government have no current plans to intervene in universities’ remuneration. Vice-chancellor pay is decided by official university remuneration committees, which include expert representatives from outside the sector. We expect these committees to examine robustly the evidence for pay increases for all relevant staff. As I said, I know that those answers—

My Lords, would the noble Lord accept that, where the regulatory function of remuneration committees in universities is obviously not working properly, as in the case of the University of Bath, the Higher Education Funding Council ought to intervene to see that it is put right? It cannot be accepted that a pay package of £0.5 million is appropriate for any vice-chancellor, particularly the vice-chancellor at the University of Bath.

I certainly undertake to relay to colleagues the views and concerns raised by the noble Lord, Lord Adonis, the noble Baroness, Lady Blackstone, and others in the House to see what further can be done, and I will be happy to write to the noble Baroness when I have done that.

Our position remains that we value the public services. We recognise that we have a duty of responsibility to the people who pay for them and to those who work in them. These are difficult judgment calls but we believe that we are delivering a balanced approach, involving fiscal responsibility to get our financial status in order. It is delivering benefits, whether through average pay growth, through benefits and pensions or through taxation policies. The personal tax threshold has been raised significantly over a period of time, meaning an increase equivalent to £1,000 a year for the average person, and 1.3 million of the lowest-paid people have been taken out of tax altogether.

I am grateful to noble Lords for their contributions to the debate. I will review them to see whether there are any points that I have not responded to and will write to noble Lords accordingly.