Truss’s regional plan was worth pursuing
It is disappointing that Liz Truss has abandoned her policy for regional pay differentials in the public sector just a few hours after announcing it. The Tory leadership contender had proposed establishing pay boards to decide salary levels rather than rely on national settlements. This is actually a good idea, yet hostility to the plan, not just from Labour and the unions but from within her own party, forced a retreat.
The reason why it is worth pursuing is because higher public sector pay in the regions squeezes out private enterprise, which finds it hard to compete for labour. In some parts of the country, such as the North East and Northern Ireland, a majority of workers are on the state payroll.
If public sector pay goes up by more than that in the private sector, especially at a time of high inflation, recruitment difficulties are exacerbated.
It is notable that the loudest protests came from Tories such as Ben Houchen, the mayor for Teesside, who questioned how it would fit in with the levelling-up agenda, even though the idea was not to impact on existing salaries, just future settlements. It would not, therefore, lead to cuts but would only apply to new contracts. Supporters of Rishi Sunak also rubbished the plan.
The public sector unions do not like regional pay bargaining or settlements because it weakens their power, which is something the Tories should be eager to achieve. Some differentials already exist, with higher allowances paid in London to account for the higher cost of living and the greater disadvantage compared with the private sector.
There have been several unsuccessful attempts to introduce regional pay, such as in the NHS in the early 1990s. Among the objections is that it makes it harder to encourage senior staff to leave London and relocate to the regions. There is also an ethical point: why should pay for the same job be determined by geography rather than skills and qualifications? Yet this is a determinant for workers coming from overseas so why not from elsewhere in the country?
At the moment, moreover, public sector pay rises may be, on average, lower than in the private sector because the national pay boards have recommended increases lower than inflation, while private firms need to pay market rates. However, these considerations could be taken into account by regional pay boards, or would be if they were ever established. After Ms Truss’s U-turn it seems we will never know.