Chancellor’s plans will take billions out of local economies and accelerate the growing north-south divide

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Local or regional public sector pay could drive down wages in the poorest areas of the country, take billions out of local economies and accelerate the growing north-south divide, says a new TUC report.

The TUC submission to the Office of Manpower Economics consultation on local pay says that with the government’s motives for the policy clear – driving down wages – public sector workers outside London and the South East could see their pay fall behind for many years, and that would be on top of the four years of pay freezes and the one per cent pay cap they are already facing.

The combination of pay freezes, pay caps and pension contribution increases will already have resulted in public sector workers taking an average 16 per cent real terms wage cut by 2015, says the TUC.

The TUC submission says that holding back pay even more will place a real strain on family finances and force them to spend less money in local shops and businesses, hitting the private sector hard.

Reducing public sector wages by one per cent would hit local economies by at least £1.7 billion a year, according to the submission. This would take nearly £200m out of the North West economy for example. Reducing public sector wages year on year would hit local businesses and lead to more business failures and job losses, the TUC warns.

The submission demonstrates that the government’s argument that public sector pay is ‘crowding out’ private sector job creation is completely false. The North East, the region with the lowest overall wages and therefore the cheapest place to recruit, also has the highest unemployment rate with nearly ten dole claimants chasing each job vacancy.

With the public sector shedding over a quarter of a million jobs in the last year alone, it is a lack of demand in the economy that is preventing private sector job creation, rather than people opting to take non-existent new jobs in the public sector, says the TUC.

The only growth areas likely to arise from regional pay bargaining will be local pay disputes, the risk of equal pay challenges and bureaucratic headaches for schools and hospitals who will have to gather labour market intelligence, draw up negotiating positions and set up new staff payrolls.

It is for these reasons and more that previous plans for local pay in the public sector have failed, and why many big private sector employers set pay scales centrally, with similar allowances for workers in London and the South East to those already used in the public sector, says the TUC.

With everyone looking to the Budget to kickstart the UK’s faltering economy, the TUC warns that a policy that will make people poorer and reduce demand outside of London and the South East will cause more damage and reinforce the growing North-South divide.

TUC general secretary Brendan Barber said: “Falling wages over the last few years have sapped people’s confidence and derailed our economic recovery. Entrenching the North-South divide through regional and local pay will only make things worse.

“Regional pay will drive down wages in poorer areas of the country, cause more business closures and reinforce the UK’s alarming reliance on London and the South East for growth.

“Doctors’, nurses’ and teachers’ pay should be set by the job they are doing rather than how wealthy their local area is. Paying someone more to save lives or teach a child in a rich area than a poor one is deeply unfair and makes no sense.

“The Chancellor’s rush towards regional pay suggests the government is more interested in picking a fight with public sector workers than boosting the economy outside of London and the South East.”


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