Michael Haggett argues that it all depends on what is devolved

March 23rd, 2012

It has been quite remarkable to see the chorus of disapproval at the idea of regional pay. Labour AMs Mick Antoniw and Mark Drakeford have provided the latest backing vocals to lead singer Carwyn Jones, who described regional pay as “absolutely wrong, absolutely immoral” only a few months ago.

To me, it is a perfect example of the old trick of shouting blame at the Tories and Liberal Democrats so loudly that no one will remember that regional pay was something introduced by the last Labour government in Westminster. The subject was again raised in First Minister’s Questions on Tuesday. But why did no-one put Carwyn on the spot by asking him how he can be so opposed to regional pay when it is proposed by the coalition government in Westminster, yet keep completely silent about it when it was actually implemented by his own party in 2007? It was an opportunity missed by every other party in the Assembly on Tuesday – although not missed by either Cameron or Osborne in the Commons during the budget debate on Wednesday.

Yet, moving away from UK-wide (or England and Wales-wide) pay scales is not necessarily a bad thing for Wales. It all depends on the precise circumstances of what is and isn’t devolved to Wales. In simple terms, regional pay is a bad thing for Wales if those affected are paid by a department of the Westminster government, but not a bad thing if the public sector workers involved are paid by the Welsh Government or by local authorities in Wales. Two contrasting examples will illustrate this.

In the case of the courts system, court workers are paid by the Department of Justice in Westminster. When the Labour Government introduced regional pay in 2007, Wales and many parts of northern and western England were put into the lowest of the five pay bands. This means that less money has come into Wales in the form of salaries, and therefore that less money is circulating in the economy of Wales as a whole because of the reduction in what those court employees can spend locally on goods and services.

But moving from UK-wide pay scales would be entirely different in the case of teachers. Teachers are paid by local authorities, and local authorities get their money mainly through the Welsh Government via the block grant with some additional funds raised through council tax and charges. Only a comparatively small part of a local authority’s income comes directly from Westminster, as a result of the Treasury supplementing the pooled and redistributed money from non-domestic rates.

The block grant that Wales gets is calculated by the Barnett Formula, which is based on our population (and if that formula were to be replaced, it would probably be replaced by a needs based formula, which would be even better). Therefore the amount of money coming into the Welsh economy would be almost completely unaffected if teachers in Wales were to be paid at a lower national rate than the average in England. Of course, teachers in Wales would be affected, but the Welsh economy as a whole would not be affected. One of three things would happen:

  1. If they received the same money from the Welsh Government as they do now, Welsh local authorities would simply spend less of it on teachers’ salaries and have correspondingly more to spend on the other services they provide.
  2. Local authorities in Wales could reduce council tax, leaving more in the pockets of council tax payers, which would then find its way into the Welsh economy.
  3. The Welsh government could give local authorities less money and instead spend more on the services it provides.

In all three cases, the total amount of money in the Welsh economy would remain unaffected. The basic rule is that if a public sector employee in Wales is paid directly by a department in Westminster, Wales will lose out by the introduction of regional pay. However, if a public sector employee is paid from money that comes through the Assembly (or is raised locally), moving from UK-wide pay scales has no overall adverse effect on the economy of Wales.

This means one important thing: that the Welsh economy will benefit by more areas of responsibility being devolved to Wales.

To illustrate this, let’s look again at the court workers currently employed by the Ministry of Justice who since 2007 have been earning significantly less than the English average because of the regional pay structure imposed on them by the last Labour government in Westminster, even though they are doing the same work. This is the map showing the extent of the pay bands (click the image to enlarge):

If the administration of justice is devolved to Wales, Welsh court employees would instead be paid by a new Welsh Ministry of Justice out of the block grant received from the Treasury. The level of that block grant would need to be adjusted from what it is now, but under the Barnett Formula we would get a proportionate share of the money spent by the Ministry of Justice in England, and more if it were to be replaced by a needs based formula.

England would presumably continue with the same five pay bands, with employees in London (Band 1) earning more than those in the home counties (Band 2), south central England (Band 3), the wider south and east of England (Band 4) and the wider north and west of England (Band 5). But the average for England as a whole would be roughly at the Band 3 level, and therefore Wales would get the equivalent of Band 3 included in the block grant as opposed to Band 5 … which is the band we are currently in on an England and wales basis.

Therefore, if the administration of justice were to be devolved to Wales, the Welsh Government could decide either to give the workers in the Welsh courts system a pay rise so that they get the same as the average in England. Alternatively, it could keep them on the lower rate and spend the extra money on something else instead. The choice would be a political decision. Yet, whatever the Welsh Government decided, more money would be circulating in Wales to benefit the Welsh economy.

Turning now to George Osborne’s budget speech, it looks certain that regional pay is going to be extended by the current coalition government at Westminster. The details are a little sparse at present, but as reported by the BBC (21 March):

“Some government departments will have the option to introduce more local pay for civil servants whose wage freezes end this year, the chancellor announced.”

By definition, any local or regional pay that affects employees in Wales and that is determined by government departments at Westminster will be in areas which are not devolved to Wales. Therefore introducing it will have a negative effect on the Welsh economy as I described above.

We can complain all we like, but the coalition has a majority at Westminster and will therefore push through whatever they want despite our objections. So my advice is simple. When the Westminster government proposes regional pay for the police, for example, the best way for the Welsh Government to avoid the inevitable negative effect on the Welsh economy will be to press for the devolution policing to Wales. Exactly the same applies to every other area which is not devolved to Wales.

Tags: , , , ,

Michael Haggett blogs regularly on Welsh matters here.

One Response to:“Regional pay can benefit Wales”

  1. Tredwyn says:

    Up to now the UK government has resisted introducing ‘needs’ measures into the Barnett formula. But would you put it past them to do so if it suited them? What if they reduce the block grant to reflect lower pay scales in public service? Lose, lose, lose….

    (Report comment)

Have your say

Please let us know in your message if you do not want the IWA to contact you in future or related IWA activity.