Ministers are wrong to suggest that the independent pay review bodies dictate public sector pay settlements. Resolving the strikes will require flexibility on all sides and a willingness to take on board changes that have happened since the review bodies last gathered evidence in early 2022, says Gemma Tetlow
Pay review bodies have been thrust into the limelight by the ongoing public sector strikes. These normally low-profile bodies have suddenly moved centre stage as debate has swirled around who should take ultimate responsibility for resolving industrial action. The government has emphasised the centrality of the pay review bodies in pay-setting for many public sector workers, with health secretary Steve Barclay, for example, saying the government “will continue to defer to that process to ensure decisions balance the needs of staff and the wider economy”. 13 Steve Barclay, Twitter, 22 December 2022, https://twitter.com/SteveBarclay/status/1605898503959429120?s=20&t=zDQA07_A_-QtjfExNyn9nA
Pay review bodies serve an important function
Around half of public sector workers are covered by pay review bodies – the major exceptions being local government employees and all but the most senior civil servants. These bodies are independent panels of experts, typically comprising economists, sector specialists, human resources professionals, and former trade unionists. They evaluate evidence each year from a range of sources and make recommendations on changes to pay, other remuneration and working conditions based on that evidence.
Their recommendations aim to ensure that the public sector can recruit, retain and motivate the staff it needs. This is important. Too often debate about public sector pay appeals to notions of the intrinsic worth of the job being done – “nurses…deserve a decent pay rise”. 14 McKinstry L, Nurses are special case and deserve a decent pay rise, Express, 18 December 2022, www.express.co.uk/comment/columnists/leo-mckinstry/1711084/nurses-strike-pay-rise-nhs But that is an unanswerable question. In a market economy, what matters is whether the terms and conditions on offer are adequate to attract, retain and motivate enough appropriately qualified people. That depends not only on what is being offered to public sector workers but also on wider labour market conditions – what pay is available elsewhere and how many people are chasing each job?
The pay review bodies gather evidence from a wide variety of sources to address these questions and provide an invaluable, independent assessment of the state of play.
Review body recommendations are constrained by the scope of the remit ministers give them
However, pay review bodies are often not empowered to conduct this assessment in an unconstrained way. The remits they are given by secretaries of state can and often do contain other factors that they must consider and/or explicit constraints on their recommendations. This year, for example, the pay review bodies were asked to also pay heed to the government’s inflation target and consider the fact that departments had fixed budgets – and so any additional spending on pay would need to be matched by lower spending elsewhere.
There are good reasons for other factors to be built into the remits. There has to be some consideration of affordability – will higher pay enable savings elsewhere? If not, how do the benefits of higher pay weigh up against the cost of lower spending or higher taxes or borrowing elsewhere? The review bodies are also able to point out if they think factors mentioned in the remit are irrelevant or inconsistent. For example, the latest NHS pay review body report played down the importance of NHS pay settlements in affecting inflation. And pay review bodies can and do highlight if they think budget constraints are inconsistent with attracting and retaining the desired number and quality of staff.
But these other elements of the remit do mean that ministers should not hide behind having followed the pay review bodies (constrained) recommendations as a defence against pressure to reopen pay negotiations and to accept responsibility for the decisions that ultimately fall to ministers.
When circumstances change, the evidence should be reassessed
The pay review body model – of an annual round of evidence gathering, evaluation and recommendations – works well in stable economic conditions. But it risks falling behind the curve when unexpected things happen. The recommendations made by the NHS pay review body in July, which the government accepted in full, were – for example – based on evidence submitted between January and March. Since then, not least because of the Russian invasion of Ukraine, prices have risen more than was anticipated back in March. 18 In March 2022, the Office for Budget Responsibility (OBR) forecast that consumer price inflation would peak at a bit below 9% in late 2022. By November, the OBR had revised its forecast to show inflation peaking at 11%. Sources: Office for Budget Responsibility, Economic and Fiscal Outlook, March 2022 and November 2022. The labour market is also tighter than was expected, as inactivity rates have risen. 19 Between March and November 2022, the OBR revised down its estimate of labour force participation rates by 0.3 percentage points in response to new data showing persistently higher rates of inactivity among the working age population. Source: Office for Budget Responsibility, Economic and Fiscal Outlook: November 2022. Both could affect how much the public sector needs to pay to recruit, retain and motivate staff. Many private sector organisations have this year offered extraordinary payments to staff outside their normal pay review cycles. 20 Walker S and Stratton C, All the firms giving workers pay rises and cost of living bonuses to help with soaring bills, The Sun, 12 August 2022, www.thesun.co.uk/money/19256888/firms-pay-rises-lloyds-virgin-money-barclays-rolls-royce/
Pay settlements will need to be reassessed in light of new evidence. Waiting until April or May – which is when the pay review bodies have currently been asked to report – may be too long.
Resolving the strikes will require flexibility on both sides
Ultimately, whether the strikes are resolved will depend on whether the government, the workforce and their union representatives want to do a deal. Where the settlement ends up between the two sides’ starting points will depend on their relative power. The strength of the unions’ hands will depend on the options their members have for employment elsewhere, how strong public sympathy is for their members’ demands, and how willing the members are to compromise if employers offer new terms. All these are likely to be different for different workforces. The strength of the government’s hand will be the inverse of this.
Understanding the strength of each side’s case will require a sober assessment of the evidence. Reaching an agreement will require a willingness to compromise on both sides and avoiding the temptation to become too invested in being seen to ‘win’. The pay review bodies offer a valuable service in assessing and independently evaluating the evidence on key public sector workforces. But they only guide ministers’ decisions, they do not dictate the outcomes.