Regional Pay

Opposition Day — [2nd Allotted Day] – in the House of Commons at 4:19 pm on 20th June 2012.

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Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury 4:34 pm, 20th June 2012

I beg to move,

That this House
notes that the national pay review bodies have been an effective way of setting pay while allowing for appropriate regional and local variation consistent with the need to recruit, retain and motivate staff and to keep tight control of public spending;
believes that seeking to alter existing frameworks for negotiating and setting public sector pay could increase costs for the taxpayer as well as exacerbating regional inequalities;
further notes that unanswered questions about Scottish separation risk uncertainty for the thousands of staff employed in Scotland under UK-wide pay negotiations and bargaining mechanisms;
further believes that co-ordinated national negotiations can also reduce uncertainty, help financial planning and reduce costly and time consuming bureaucracy, local negotiations and disputes;
and opposes moves intended to weaken or dismantle efficient and stable arrangements for negotiating and setting public sector pay.

We have called this debate today to give Members on both sides of the House an opportunity to raise concerns and ask questions about the Government’s plans for regional pay and to send a message that there is no appetite among nurses, teachers, police officers or, indeed, businesses in our constituencies for disrupting or dismantling the systems we have in place and going down a path that would escalate costs to the taxpayer and exacerbate regional inequalities. We are giving the Government an opportunity to dispel the confusion that they have created, and perhaps to get out of the hole that they have dug themselves into by executing another of the U-turns that have become something of a speciality of late.

Last autumn, the Chancellor announced his desire to make public sector pay

“more responsive to local labour markets”. —[Hansard, 29 November 2011; Vol. 536, c. 802.]

At the time he described it as a “very significant reform”, and one newspaper said that the Treasury regarded it as

“one of the most important measures it can introduce to rebalance the economy.”

The Chancellor’s supporters were excited. Christopher Pincher said enthusiastically that

“a truly local…negotiating structure” would make wage rates in economically depressed communities more competitive.

More recently, there have been signs that the Liberal Democrats and, perhaps, 10 Downing street have become worried about the new mess that the Chancellor has got them into, with signals given out that nothing is decided and, in the words of the Deputy Prime Minister,

“there is no proposal on the table”.

In response, Mr Burley has called on the Chancellor to “hold firm”, and Andrea Leadsom has said that national pay bargaining is the reason why businesses are struggling at the moment.

Photo of Kevin Brennan Kevin Brennan Shadow Minister (Education)

My hon. Friend may not be aware of this, but the Federation of Small Businesses in Wales has also come out against the

Government’s proposals for regional pay. Should it not be a warning to them that they are on completely the wrong path?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I am not surprised at all, because in reality, if regional pay were introduced and pay were cut in Wales and in other areas of the country, businesses would suffer because people would have less money in their pockets to spend with local companies.

Given the concern that the proposal has caused, the Government have a responsibility today to clarify their position and their plans. Was the Chancellor right when he said that it is a “very significant reform”, or was the Business Secretary right today when he said that there is no question of the Government imposing lower pay on people simply because they happen to live in poorer parts of the country? Those mixed messages have created confusion: confusion about the degree of localisation and variation being proposed; confusion about whether the Government propose to differentiate pay into regions, zones or local markets, which could itself mean many different things; and confusion about whether national bargaining structures would be maintained, replaced with local bargaining processes or dispensed with altogether.

All that we have from the Government is the evidence that the Treasury has submitted, alleging that in many parts of the country public sector workers are paid upwards of 10% more than their private sector equivalents.

Photo of John Robertson John Robertson Labour, Glasgow North West

Does my hon. Friend agree that the confusion being caused by the regional pay strategy, added to the fact that so many people are unemployed—unemployment is growing in my constituency—and that we are trying to get people into work, raises the question, “What are the Government trying to do?”? Do they want to get people into work, or do they want to ensure that people have jobs that they can afford to live with?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend for that intervention. As a result of that confusion, many people who are in work are worried about spending money, because they are not sure what is going to happen to their pay, and that uncertainty is also making economic recovery harder to secure.

Comparing rates of pay in the public and private sectors involves a notoriously complex and controversial analysis. It is difficult to be sure that one is comparing like with like, because the jobs done by teachers, police officers or emergency workers have so few private sector equivalents.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

My hon. Friend may be interested to know that inward investors to whom I have spoken are concerned to have decently funded public services in education and health; they do not want a GP in Swansea, for instance, to up sticks and go to Bristol. Does she agree that in many instances that analysis, concluding that different pay for the same job throughout the country will help the private sector, undermines the confidence of inward investors and is counter-productive?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

My hon. Friend speaks powerfully on behalf of his constituents in Swansea. In my area, many people commute from Bradford to work in Leeds and the other way round. Would their pay be determined by where they work or where they live? If the Government say that their starting point is these differentials, they cannot blame people for concluding that their ultimate aim is a reduction of 10% or more in the relative pay of public service workers in some parts of the country.

Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

When there is regional bargaining, in which I was once involved in a trade union, the complexities mean that there are more likely to be added costs. Indeed, the situation is the opposite of everything that happens as a result of what was created in 1908 by Whitleyism.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

My hon. Friend is absolutely right, and I will come on to deal with some of the evidence that backs up his point.

Photo of Ben Bradshaw Ben Bradshaw Labour, Exeter

This is not just a cause for concern in Scotland, Wales and the northern regions of England. There is also deep concern in the south-west, where we have the biggest gap between wages and house affordability. Any regional pay structure is bound to involve a huge transfer of public money from regions such as the south-west to the wealthy south-east, and that is exactly the opposite of what the Government should be doing.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my right hon. Friend for that intervention. Indeed, a 1% pay reduction for public sector workers in the south-west would cost that region £140 million a year.

If the Government were to achieve their objective of reducing pay to what they say is the equivalent in the private sector, a real-terms cut in pay, year after year for a decade or more, would be needed. It is no wonder, then, that people are worried and are calling on the Government to come clean on what their plans really are. It is no wonder that people think this is a deliberate attack on public sector workers and on the parts of the country that have already been hardest hit by the recession.

Photo of Chris Ruane Chris Ruane Opposition Whip (Commons)

Regional pay was mentioned this morning in the Welsh Grand Committee, when I quizzed the Secretary of State for Wales about it. The terminology that Government Members are using is not “regional pay” but “local-facing pay”. I asked for an explanation of what local-facing pay was, but got no response. Does my hon. Friend agree that if local-facing pay is introduced, there will be sad faces in Wales and happy faces in Buckinghamshire?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

The problem is that the Government are being a bit two-faced, with one person saying one thing and another saying something else.

The reality is that we are in a recession made in Downing street and it is hitting some parts of the country particularly hard. I quote from a recent report by the Institute for Public Policy Research on the state of the northern economy:

“The double-dip recession has hit the North hard, with unemployment rising and business confidence falling. This lack of confidence among employers has maintained the hiring freeze across the North, implying that upward pressure on unemployment is likely to continue for the rest of the year.”

The difficulties faced by workers and businesses in many parts of the country as a result of the recession that this Government have landed us in are being made all the more desperate by the Government’s short-sighted decision to dispense with policies and processes put in place by the Labour Government to support more balanced development across the UK. This is a Government who got rid of regional Ministers, shot down regional development agencies, and cut back on vital regional investments such as the loan for Sheffield Forgemasters. The only regional policy that they have left is regional pay, which will take more money out of some of the most deprived areas of the country.

Photo of Elizabeth Truss Elizabeth Truss Conservative, South West Norfolk

In the 1990s, Sweden moved from national pay scales to individual contracts. That was supported by the unions and resulted in a rise in some salaries for jobs where there was a shortage of workers—for example, kindergarten teachers—and it has been very successful. Is it not the case that other countries are moving to more competitive labour markets while we are moving backwards, as we did under the previous Government?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I am sure that the 11,500 public sector workers in the hon. Lady’s constituency will know that she is sticking up for them.

Photo of Mike Freer Mike Freer Conservative, Finchley and Golders Green

If the Opposition are so vehemently opposed to regional pay, will the hon. Lady be instructing Labour London MPs to give up their London weighting?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I will come to the regional flexibility that is already in the system in inner and outer London for teachers and those in the health service. The point is that it is not necessary to dismantle the national system in this way to get the flexibility that we need.

We can imagine the impact that these changes might have on regional economies. If the north-east had a further year’s pay freeze imposed on it next year and the 1% increase that the Chancellor has announced was concentrated in more favoured areas, it would deprive the region’s economy of £78 million a year. If the same happened in other regions, Wales would lose £97 million a year, Yorkshire and the Humber £130 million, the south-west £140 million, as I said before, and Scotland £162 million.

Does the Minister really think that this policy will contribute to economic rebalancing? Is it really the best that the Government can come up with? Their only policy for jobs is to make it easier to fire people and their only policy for the regions is to cut the pay of public sector workers. It is no wonder that we are back in recession. It would be laughable if it was not so depressing.

There is no credible evidence to support the claim that the difficulties faced by the private sector are the result of national pay frameworks in the public sector.

Photo of Margot James Margot James Conservative, Stourbridge

On that subject, the hon. Lady may be aware that the difference between private and public sector pay scales is as much as 18% in parts of the country. She talks about money being taken out of the economy, but does she not accept that if the pay scales were not so divergent, there would be additional private sector investment in those areas?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I am sure that the 10,300 public sector workers in Stourbridge will be pleased to hear that the hon. Lady wants their pay to be cut.

Paul Callaghan CBE, the Sunderland technology entrepreneur and owner of the Leighton Group who was recognised in the recent Queen’s birthday honours list for services to the north-east, has said:

“I’m very concerned about the negative impact on the North East economy of regional pay rates.”

He went on to say that the

“freezing of regional public sector pay must reduce demand for local goods and services, further dampening an already depressed economy. I have seen no credible research to show that this move will have anything but a negative impact on both the region’s private and public sector.”

James Ramsbotham, the chief executive of the North East chamber of commerce, has said that

“the Government should be working towards making the economy more equal across the regions and not entrenching further disparity by reducing spending power in the North-East.”

The chief economist of the Welsh Government, in reviewing the impact of public sector pay rates on businesses in Wales, said that

“there is no credible academic evidence or research to indicate that crowding out has been happening in practice.”

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase

I am glad that the hon. Lady read my quotation in The Daily Telegraph this morning. As she has read out a couple of quotations, perhaps I may read one back to her:

“location-based pay systems offer increased flexibility and a systematic approach to addressing recruitment and retention issues at a local level.”

That is from Unison’s policy paper “Location-based pay differentiation”, which was published in September 2011. Does she agree with Unison, which I understand is a donor to her constituency party?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

The hon. Gentleman should speak to the 9,500 public sector workers in his constituency. That number is substantially larger than his majority.

What families and businesses in these parts of the country need is not an even tighter squeeze on the wages of the people who are keeping their public services running, but a Government with a proper plan for jobs and growth who will work actively with businesses to get investment flowing into the sustainable, competitive, high-value industries of the future. That is what we need to improve living standards and economic opportunities in every part of the country.

Photo of Jim Sheridan Jim Sheridan Labour, Paisley and Renfrewshire North

My hon. Friend has highlighted the enthusiasm of Andrea Leadsom for these measures. It may be helpful to share with the House the fact that the same Member is asking for exemptions from the minimum wage for employers. Perhaps that is the real agenda here.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend for mentioning that. That is how the Government will get the economy moving again—by cutting the pay of the most vulnerable workers and introducing regional pay.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

It will be interesting to hear what the hon. Lady has to say to the 10,800 public sector workers in her constituency and whether she wants them to have a pay cut.

Photo of Andrea Leadsom Andrea Leadsom Conservative, South Northamptonshire

I am grateful to the hon. Lady. I was going to say that my 10,500 public sector workers will no doubt agree with me that the way to get our economy going again is by a private sector-led recovery, which requires that businesses begin to thrive. Does she accept that it is a private sector, business-led recovery that will turn around our economy?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

Perhaps those 10,500 public sector workers can give their verdict at the ballot box. Yes, we do need a private sector recovery, but we will not achieve that by cutting the pay of the people who deliver our public services.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

Can we put to bed the idea that public sector jobs crowd out private sector jobs? Between 2003 and 2008 the number of public sector jobs increased by 4.1% and the number of private sector jobs went up by 9.2%. That belies the case that the Government always make that public sector jobs crowd out private sector jobs.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

My hon. Friend makes a very important point.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

Given the perverse logic that Government Members put forward, will my hon. Friend reflect on the fact that despite the disparity in public and private sector pay rates in the north-east of England, unemployment is going up? We might have thought that investment would be flooding in on the basis of cheap wages in the private sector.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I thank my hon. Friend for that point and look forward to hearing what the Minister has to say in response.

As well as the business people and other experts whom I have quoted, the key stakeholders have made their views clear. Not just the trade unions but employers and independent experts have expressed concerns. For example, NHS Employers notes that employers already have

“the option to pay recruitment and retention premia”— that is related to the point made by Mike Freer

“to address…specific labour market issues.”

It states that a move to local pay bargaining would

“raise issues of local capacity, increase administration costs and risk pay inflation as employers compete directly for staff on pay. Getting rewards wrong could have a significant impact on the quality of patient care and safety.”

The National Employers’ Organisation for School Teachers states that

“the existing four national zones, plus the flexibility to pay recruitment and retention supplements…provide an appropriate balance between national determination and local flexibility…the existing framework provides a reasonable level of autonomy to set pay”.

It reports that 84% of its members

“considered that the number of pay bands was appropriate to reflect local labour market conditions; only 7% thought this was not the case.”

The National Governors Association reports that it is

“not aware of any evidence that suggests making pay locally responsive would improve recruitment and retention.”

It points out:

“Low cost of living indices tend…to be associated with social deprivation; these areas may also…have difficulty attracting the best staff… As the Government is rightly concerned to narrow the attainment gap between those children from disadvantaged backgrounds and those who are not, bringing teachers’ salaries in line with local market conditions…would possibly be counterproductive and create recruitment difficulties that do not currently exist.”

The evidence is clear, and so are the views of the experts, but the Chancellor’s posturing has created real worries for public service workers around the country. Nurses, teachers and police officers are already suffering the effects of the pay freeze and being hit by the sharp hike in pension contributions, and like everyone else they are suffering the effects of the Government’s recession, unfair tax rises and cuts. Now, the Chancellor is threatening to impose policies that for many people in many parts of the country would mean real-terms cuts in their income, continuing year after year. That would force them to pay the price for the Government’s economic failures. The millions of workers who are keeping our public services going in difficult times, the majority of them women on modest wages, deserve better than that.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

Does my hon. Friend agree that the people who are being hit by the speculation about regional pay are the self-same people being hit by the withdrawal of the regional development agencies and speculation about NHS funding? The total picture created by the Government is the crushing of demand and undermining of confidence in Wirral and Merseyside, the parts of the country that I represent.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

My hon. Friend speaks powerfully on behalf of her constituents in the Wirral, and I know they will appreciate that.

Photo of Chris Williamson Chris Williamson Shadow Minister (Communities and Local Government)

Would my hon. Friend care to comment on the fact that yet again the Chief Secretary to the Treasury has gone AWOL? We have had debate after debate in which the Government have rolled out junior Treasury Ministers, and now he has ceded his responsibility to the Cabinet Office. Can my hon. Friend shed any light on what on earth is going on?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

Given that the policies have such big implications for the public purse, especially as anticipated costs go up because of the extra bureaucracy, I would have thought the Chief Secretary had a clear interest in them.

I suggest that Ministers take this opportunity to call a halt to this exercise, end the uncertainty and confusion and put people’s minds at rest. They did that for charities, churches and caravans, and even for pasties. As the Prime Minister has said:

“When you’ve got something wrong, there are two things you can do in government: you can plough on regardless, or you can say, ‘No, we’re going to listen, we’re going to change it’”.

I therefore hope the Minister listens to what Members say in today’s debate and changes course before the Government get into even greater difficulty. Trying to make public sector workers in hard-hit parts of the country the scapegoats for our economic problems is disreputable and divisive, and it is a distraction from the task to which the Government should be giving their full attention—a plan for jobs and growth that can get us out of the recession they have got us into.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office 4:55 pm, 20th June 2012

I beg to move an amendment, to leave out from “House”
to the end of the Question and add:

“notes the importance of recruiting, retaining and motivating staff and keeping tight control of public spending;
further notes that the then Chancellor of the Exchequer, the right hon. Member for Kirkcaldy and Cowdenbeath, first proposed a fair framework for local and regional flexibility for pay in his statement to the House of 9 June 2003;
supports the Government in asking the widely respected independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets;
and believes the Government is correct in awaiting the conclusions of those deliberations before making a decision on bringing forward proposals in respect of public sector pay’.

The shadow Chief Secretary, Rachel Reeves, began by quoting the Chancellor, so let me quote the Chancellor a little more extensively:

“I can tell the House that the British economy is…better placed to recognise local and regional conditions in pay”.

He continued that, in future, we therefore plan that

“remits for pay review bodies and for public sector workers, including the civil service, will include a stronger local and regional dimension”.—[Hansard, 9 April 2003; Vol. 403, c. 283.]

That was the Chancellor in 2003, the previous Prime Minister. He set that proposal out at time when his advisers were the current Leader of the Opposition and the shadow Chancellor. I do not know whether the shadow Chancellor wrote that passage for the Budget speech—a lot of the Budgets around that time turned out to be “Balls”. Did he write it? Does he agree with it? If not, what has changed in the meantime? [ Interruption. ] It was clearly the best the right hon. Gentleman could do at that time. I shall come to the history behind the current Government’s approach, because the idea that it is a dramatic new departure is absurd. There is quite a long history, but we now have the opportunity to explore it.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

I shall get started, but I will give way to the hon. Gentleman in due course.

Let me begin by setting out the Government’s approach to this important issue. First, we believe there is a strong case for looking at introducing local market-facing pay and at how that can be done, but let me say clearly that our approach is not about ending national pay bargaining. Pay can be made more responsive to local labour markets within a national bargaining framework. Any benefits from localising pay can be realised without any need to get rid of national pay bargaining.

Secondly, the proposal is not about making further savings. We will continue to operate within tightly constrained overall public sector pay remits.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

I am going to make a little progress, but I will give way in due course.

Those pay remits are currently set at 1% a year. We need those constraints in order to address the appalling legacy of the biggest budget deficit in the developed world, which was left by exactly the people who now complain about its effects. Our approach is not about making further savings, but entirely about creating greater flexibility within those pay remit constraints.

Thirdly, this is not about cutting anybody’s pay. Even if we wanted to, we would not be legally able to do so.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

I will give way to the hon. Gentleman, who has been persistent.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

Will the Minister speculate on why the Chief Secretary to the Treasury thinks the sun shines out the backend of this policy, while the Liberal Democrat leader in Wales has told him to stick it where the sun don’t shine?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

That was about as laboured a joke as I have heard in this place, but we will let the hon. Gentleman know.

Like the previous Government, we have said that it is important to look at the level at which public sector pay is set in each labour market over the longer term, which is why, in the autumn statement, the Chancellor announced that there was a case for considering how local pay could better reflect private sector labour markets. He invited the independent pay review bodies to consider the evidence, which is exactly what they are now doing.

Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

I do not know whether the Minister has ever been involved in wage negotiations, but if he looks at the public sector and then at the private sector, he will see that some multinational companies do national negotiations and do not have local rates. Is that not the case?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

They may well do national negotiations. If the hon. Gentleman had listened, he would have heard me say that our proposals do not involve a change to national pay bargaining mechanisms. Actually, though, plenty of companies have preferential pay rates in different parts of the country, as might well make sense in some circumstances. But he clearly did not listen to what I said earlier.

Pay decisions in the civil service, below the senior civil service, are delegated to individual Departments, so it is for each Department to consider the case as it applies to its own work force.

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

It has occurred to me that Conservative Members were against the national minimum wage when it was introduced. Will the Minister confirm beyond doubt that this is not the thin end of the wedge and that there will not be any attempt to undermine the national minimum wage through regional pay?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

We have made it clear that we support the national minimum wage. That has been the case for a long time.

Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

I am trying really hard to understand what the Minister is saying. Will he please tell me whether I have got this right—he does not want to dismantle pay structures or cut pay, but he does want to introduce bargaining and flexibility? Does that mean that there could be no pay cuts for any current or future employee as a result of that flexibility? What would that mean in the west midlands, where to get a house, someone has to raise a deposit of twice the average regional salary? In practical terms, is he talking about those pay levels rising or falling?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

The hon. Gentleman has failed to listen either to what the previous Prime Minister and Chancellor said, to what his own Government introduced or to what we have said, which is that this is not about regional pay, and nor has it ever been.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

I think the Minister has been a bit selective in quoting Treasury Ministers in the previous Government. Treasury guidance notes put out by Ministers in 2003 also stated:

“At the extreme, local pay in theory could mean devolved pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”

In other words, the previous Labour Government were never going to do what this Government intend to do now.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

Given that the hon. Gentleman has not given me the chance to talk about our plans and approach, perhaps he will be patient and contain himself until that moment.

As I was about to say, nothing has yet been decided. Any proposals for each work force must be based on strong evidence. We want to hear from everyone with a contribution to make, and we are committed to making any future decision on the basis of evidence, which is the right way to approach the matter. That is why we have invited the various pay review bodies to consider the matter on that basis.

However, as I said earlier, we are not the only Government to think that there is a case for looking at this issue. The case was recognised by the last Government, and they gave it, I presume, serious thought. Indeed, in 2003, the then Chancellor announced a stronger local dimension to pay review body remits, noting that there was significant scope to increase the flexibility and responsiveness of public sector pay. He told the House:

“With this national framework for fairness in place, it makes sense to recognise that a more considered approach to local and regional conditions in pay offers the best modern route to full employment”.—[Hansard, 9 June 2003; Vol. 406, c. 412.]

Does anyone on the Opposition Benches disagree with that? It seems a considered and sensible approach to me.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

I will not give way, if the hon. Lady will forgive me, because I need to make some progress and Back-Bench contributions are already likely to be constrained because the debate started rather late.

The then Chancellor also said that pay for the civil service should include a stronger local and regional dimension, while in that year’s Budget he set out

“action to increase regional and local flexibility in public service pay”.

As I have mentioned, the then Chancellor’s advisers included the current Leader of the Opposition and the current shadow Chancellor. It seems pretty opportunistic for Labour, at the 11th hour, to produce this motion, when its own Government took the public sector further down this path than we are at this stage contemplating.

Indeed, Labour did not just talk about localised pay; it actually introduced it. In 2007, the last Government introduced localised pay for civil servants across the Court Service. They did so in response to the Treasury’s pay guidance, issued in 2007, at a time when, as far as I can make out, the current Leader of the Opposition was the Minister in the Cabinet Office responsible for civil service matters and the shadow Chancellor was the Economic Secretary to the Treasury. Yet that pay guidance, which went out across the civil service, asked Departments that operated across different locations to differentiate between pay levels across regional labour markets. Following that guidance, which was issued under the aegis of the current Leader of the Opposition and the current shadow Chancellor, the previous Government introduced localised pay in the Court Service across the country. That was, if I may say so, a sensible and unusually well-judged move, and it has been successful.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

I am going to make progress now.

That policy was introduced at a time when those who are now on the Opposition Front Bench were intimately involved, so it is worth the House asking itself what happened. Did devilish civil servants somehow slide this wicked measure through, as the attention of the current shadow Chancellor and Leader of the Opposition was elsewhere, no doubt overly occupied in trashing the then Prime Minister?

Why is the shadow Chief Secretary to the Treasury taking up valuable parliamentary time attacking in opposition a policy that her own leaders actively promoted in government? It is not as if the Labour party immediately abandoned the idea in opposition that local and regional variations in the cost of living are important. In January, The Guardian reported that Mr Byrne—another previous holder of my post—told a private meeting of Labour MPs that housing benefit

“varies locally and so should a benefit cap”.

In fact, he was reported to have said:

“It makes much more sense to have localised caps…in different parts of the country”.

That revealed that the Labour party still recognises in private the very principle that it is today seeking to oppose. It is humbug, Madam Deputy Speaker. Yet again, the Opposition oppose policies that they introduced in government and that they still support in private.

We know what is behind this. It is the Labour party’s union paymasters who are calling the tune. We know that the Labour party ask their union backers which amendments to vote for and which to oppose. We know that under the current Labour party leader more than 80% of Labour’s donations come directly from trade unions—even more than under the last Prime Minister. No wonder Charlie Whelan boasted that it was Unite that won the current Labour party leadership. Yet again, it is Unison and Unite that are calling the tunes. But even the unions are confused on this matter. As my hon. Friend Mr Burley said, Unison itself has made the case for local variations.

There is a serious case to be made for local market-facing pay. While private sector pay is typically set according to local markets, public sector pay is usually set on a one-size-fits-all basis at national level. As a result, public sector workers are often paid more than private sector workers in similar jobs in the same area. According to the Institute for Fiscal Studies, the overall gap between public and private sector pay averages 8.3%. However, the gap can be as low as virtually minimal in some places and as high as nearly 20% in others.

Academic research also shows that public sector pay is only 40% as responsive to local labour markets as private sector pay. That has potentially damaging consequences for the public sector and the economy. A one-size-fits-all system for public sector pay could limit the number of public sector jobs that could be supported in lower cost areas. It militates directly against the relocation of public sector jobs to more deprived parts of the country. Private employers looking for staff to set up or grow their businesses might need to compete with much higher public sector wages. The evidence has yet to be examined, but the public sector could be crowding out the private sector in that way, and holding back the private sector-led recovery that the economy needs. Arguably, this makes private sector job creation less attractive. Importantly, it also makes it less attractive to move public sector jobs out of London and the south-east because, without any differential in pay rates to reflect the differential in living costs, it is much less easy to justify the relocation costs and loss of continuity that relocating inevitably involves.

So this approach is about investigating whether this could be another way of supporting local economies, by helping to provide more public sector jobs for the same level of spending and by helping the local private sector to become more competitive and to expand. This could help poorer areas to grow—[ Interruption. ] Exactly that point was recognised explicitly by the previous Prime Minister. He made exactly that argument. The hon. Member for Leeds West might want to argue with him, but we think that this is one of the few things on which he was right.

More broadly, this Government are determined to support regional private sector growth. Since the last election and the formation of the coalition Government, 843,000 private sector jobs have been created, and promoting regional growth—[ Interruption. ]

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. I am sorry, Minister. It is not necessary for Members on either side of the House, especially those on the Front Benches, continually to shout across the Floor. This is an important and heated debate—[ Interruption. ] I do not know why you are tut-tutting, Ms Bray; you have been doing a fair bit of shouting as well.

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

We would have made better progress if, every time anyone stood up, the hon. Member for Leeds West had not recited the number of public sector workers in their constituency. She could just have laid the document before the House and we could have taken it all as read. It was a pretty poor substitute for an argument, but I suppose it was the best that she could do.

We are committed to supporting regional private sector growth. As I was saying, 843,000 private sector jobs have been created since the general election, and promoting regional jobs is at the very heart of our growth strategy. In the autumn statement, we announced an additional £30 billion of investment—

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

Only if the hon. Lady promises to read out the number of public sector workers in my constituency.

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

I do not think that the Minister wants to cut their pay. Does he think that teachers in Horsham should be paid more than those in Leeds West?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

Under the hon. Lady’s own Government’s policy of introducing academies, it will increasingly be a matter for the management of those academies to set their own pay rates. So the policy that her Government set in train will, over time, lead to differentials coming into existence. Perhaps she will tell us whether she supports the policy of giving academies more freedom to make their own decisions—or is that another subject on which she is going back to her old, left-wing, statist ways?

Photo of Rachel Reeves Rachel Reeves Shadow Chief Secretary to the Treasury

The last Labour Government did not give less money to schools in Leeds than they did to schools in Surrey. Is that this Minister’s policy?

Photo of Francis Maude Francis Maude The Paymaster General and Minister for the Cabinet Office

Under the last Government, a lot of schools in a lot of places found they were getting a lot less support than they were in other places—funny, that. The fact is that we announced an additional £30 billion of investment in major infrastructure projects across all regions of the UK, and in the Budget we laid out an additional investment of £420 million to stimulate local economic growth.

We have already taken considerable action to achieve strong sustainable and balanced growth that is more evenly shared across the country, but there is a lot more to do. It is not easy, but we have not shirked our responsibility and we will leave no stone unturned to promote a sustainable balance and fair private sector recovery across the UK. First and foremost, that has meant tackling the record deficit that we inherited, ensuring that the UK remains to the greatest extent possible insulated from the storm that undermines our eurozone neighbours. Public sector pay restraint has to play a vital role in that fiscal consolidation. At the same time, by considering the case for local public sector pay, we can ensure that we continue to have high-quality public services across the entire UK and help to support a private sector recovery. I commend the amendment to the House.

Several hon. Members:

rose —

Photo of Dawn Primarolo Dawn Primarolo Deputy Speaker (Second Deputy Chairman of Ways and Means)

Order. A large number of Members wish to participate in the debate, so it is necessary to change the time limit to a maximum of five minutes for all Back-Bench contributions. It might be necessary to review that before the end of the debate and to reduce it further.

Photo of Grahame Morris Grahame Morris Labour, Easington 5:16 pm, 20th June 2012

I was rather perplexed by the Minister’s response. My impression is that if it walks like a duck, talks like a duck and quacks like a duck, it is a duck. The Minister, however, says he is in favour of national pay negotiations, but wants to change how it is delivered regionally. As I say, I am confused about whether this is a U-turn, or is it two U-turns so that the Minister is facing in the same direction? It seems as if that is exactly what has happened.

Any decision to allow regional pay differences for low-paid workers in the public sector would only exacerbate the economic and social north/south divide. In fact, we recently had a Westminster Hall debate in which some of the relevant statistics and factors were put on the record. The announcement in the autumn statement that this was on the Government’s agenda came without any prior evidence base for such a move. When Ministers talk about how public sector pay might better reflect local markets, they mean only one thing—pay less to people in poorer areas such as ours.

Rebalancing our economy for the future and addressing the north/south divide should be a Government priority. However, these proposals for regional or local pay differentials—whatever the terminology—would simply entrench that divide. The north-east is facing a double-dip jobs crisis. Government policies of slash and burn in the public sector are hitting the north-east hardest, and the promised private sector-led recovery was always a Tory mirage. [Interruption.] Let me remind Conservative Members who are heckling from a sedentary position that the figures for the north-east show unemployment now standing at 145,000—up 8,000, providing a regional figure of 11.3%, which is an absolute disgrace. Regional pay in the public sector would only make things worse, turning the north-east, and indeed other peripheral regions, into low-pay ghettos.

Photo of David Mowat David Mowat Conservative, Warrington South

I thank the hon. Gentleman for giving way, as I have been trying to intervene for a while. He makes a point about the north/south divide, about which many hon. Members on both sides are concerned. Will he concede that in the last year of the previous Government, the gross value added difference between London and the north-east reached the highest level for a decade and a half? I do not think that was due to the present Government, so what was it due to?

Photo of Grahame Morris Grahame Morris Labour, Easington

I shall come to that point. Under the last Government, the GVA differential was considerably reduced over 10 years. I do not have much time, but if the hon. Gentleman reads the Hansard report of the Westminster Hall debate, he will find all the information there.

In trying to justify his proposals, the Minister mentioned the evidence base, as did Margot James. That worries me. Pay review bodies and police boards oversee a pay bill of about £95 billion, and any changes in the distribution of that money would have major consequences. The reverse multiplier and the taking of moneys from local economies are a huge issue, and the benefit changes have already had a terrible effect on the economy in the north-east.

I refer the Minister and the hon. Member for Stourbridge to the Government’s own evidence to the current review, which includes some key sets of figures that I found intriguing. According to that evidence, statistics from the Office for National Statistics on regional price levels relative to national price levels show that, if London is excluded, price levels throughout the United Kingdom vary by only 5.3%, from 97% in Yorkshire and the Humber to 102.3% in the south-east. In my region, the north-east, the price level is 98.2%. Those figures show the smallest variation in price increases throughout the United Kingdom. If the Government proceeded with their proposal to vary pay levels in the public sector, those in the poorest regions, such as the north-east, would be worse off while the wealthiest regions benefited to the tune of billions.

Photo of Ian Mearns Ian Mearns Labour, Gateshead

All of us in north-east England are calling for an economic stimulus to create demand and grow the economy. This measure would apply an economic sedative to regions such as ours.

Photo of Grahame Morris Grahame Morris Labour, Easington

I agree with my hon. Friend’s analysis.

The other likely negative impact of the Government’s policy is a brain drain from the regions with lower pay to those with higher pay. In my opinion, the Tory party has never understood the values and principles of our public services, which were founded on fairness and equity. What is truly outrageous is that Ministers waste their time targeting low-paid public servants when the real crisis is in the private sector. I believe that those are diversionary tactics, and that, if implemented, they would take more money out of the northern regions, which are already suffering from a lack of demand throughout our economies.

The United Kingdom is crying out for a serious new industrial policy that would reduce regional inequalities and close the north-south divide. A regional pay policy of the sort that the Government propose would only make the position worse, and it lacks an evidence base. Any comparison between public and private sector pay is a very crude measure. There are far more highly qualified workers in the public sector, there is a smaller gap between the top and bottom levels of pay, and there is a smaller gender pay gap. The majority of low-paid work in catering or cleaning, for example, is in the private sector. Similar roles in the public sector are often outsourced, which skews the figures still further.

David Mowat asked about figures relating to growth rates and relative performance. Under the last Labour Government, the rate of growth in my region, the north-east, went from being the lowest in any region during the 1990s to being the second highest during the last decade. Between the mid-1990s and the global economic downturn of 2008, employment growth increased by 11.2% in the north-east and by 9.2% nationally. Between 2002 and 2008, private sector employment in the north-east rose by 9.2% while public sector employment grew by 4.1%, a point made by my hon. Friend Phil Wilson. Between 1999 and 2007, the number of businesses in the north-east rose by 18.7%, which compares favourably with London’s business growth of 19.6% during the same period.

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase 5:24 pm, 20th June 2012

First, I want to say how grateful I am to Her Majesty’s Opposition for choosing this topic for debate. Regional pay is an issue that has been swept under the carpet for far too long, and it is about time it was debated in this House. It is an issue that affects many businesses in my constituency, and local business leaders have repeatedly raised it with me since I first became an MP.

The simple truth is that private sector firms have to compete with public sector employers, who in many parts of the country currently offer a comparative premium on salaries, not to mention better pensions and other benefits such as job security. This means competition is distorted and the private sector is stifled because it cannot afford to employ new people or employ the best local people.

There is no way around the fact that private sector pay is, on the whole, set locally, and public sector pay is usually set nationally. It is simply a fact of modern life that public and private sector organisations compete for employees in different markets across the UK. The Opposition and their union supporters are quick to paint regional pay as an attack on the public sector or a race to the bottom, but that is offensive to the millions of people who work in low-paid private sector jobs. [Interruption.] This is not a race to the bottom; it is a race to reality—the reality of what people are paid in the real world. [Interruption.] Opposition Members who are chuntering from a sedentary position should remember that without a flourishing private sector in all parts of our country, there could be no public sector jobs, well paid or otherwise, because without the private sector, there could be no public sector. I therefore say this to Opposition Members: anyone who cares about the public sector should also care about creating the right environment for the private sector. That is why tonight’s debate is so important.

Photo of Richard Burden Richard Burden Labour, Birmingham, Northfield

The hon. Gentleman and I represent west midlands constituencies. Will he answer this simple question: does he want to bring down public-service pay in our region, and if so, by how much?

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase

I want the private sector in the west midlands to flourish. One of the most astonishing facts I have learned since becoming an MP is that between 1997 and 2007 the number of jobs in the private sector in the entire west midlands region fell. During the boom years of the hon. Gentleman’s Government, private sector employment went down, and I do not want to crowd out private sector growth in the west midlands. That is why this regional pay debate is so important.

I read an amazing article on the ConservativeHome website, with which I totally disagreed. It stated:

“Many Tory MPs with small majorities need to keep as many public sector workers onside as possible in order to keep their seats at the next election…For this reason, expect Lib Dems and low-majority Tory MPs to have grave concerns about any regional pay proposals—and expect the plans to be significantly changed or dropped altogether.”

Well, I am a low-majority Tory MP, and I believe this House is at its best when it is at its boldest, and I would be greatly saddened if everything we did was driven by narrow regard for our own majorities and saving our own skin and seats.

The fact that the shadow Chief Secretary to the Treasury, Rachel Reeves, read out the number of state workers in each of our constituencies says all we need to know about Labour’s approach: stuff their mouths with gold and buy votes. That is the approach of the Labour party, and the hon. Lady did precisely that tonight.

We must do what is right for the country, and what is right for the country is for the Government to do everything they can to enable the private sector to flourish, so that it can pay the taxes that fund the vital public services that all our constituents rely on, not just fund the pay of the public sector workers who happen to live in our constituencies.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

What advice would the hon. Gentleman give to his party colleague, Guy Opperman, who has a substantial majority and who has said that there is no economic case for regional pay?

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase

I am sure we will hear from my hon. Friend in due course, and I will let him make his own arguments, but in the very short time I have left I want to focus on the principle behind this debate, which is whether there are different costs of living in different parts of the country and, if so, whether that should be reflected in state pay. The simple answer to both of those questions is yes.

Someone commented in response to the ConservativeHome article to which I have referred:

“Perhaps an experiment over a 2 year period to prove Regional Salaries are such a great idea? Begin with MPs and their staff. No doubt they will jump at the chance to lead by example?”

I propose to do exactly that. I have to hand the Independent Parliamentary Standards Authority bandings for accommodation expenditure—the amount that can be claimed by MPs to live in their constituency. Guess what? Yes, they vary by constituency. As MP for Cannock Chase I could claim £10,950 a year to pay my rent and bills, if I were to claim expenses for living locally, which I do not. The Member for Cambridge can claim £15,150—nearly 50% more than I can claim. The Members for North Somerset and North West Hampshire can claim £13,750, whereas the Member of North Swindon can claim just £12,350. So there we have it: there is regional variation in what MPs can claim to live, based on the cost of living in their area. If it is good enough for MPs, why should it not be reflected in the pay packets of other public sector workers?

Let us examine the arrangements for employing our staff. If I employ a senior caseworker in the London area, I have to pay him £23,000 to £31,000. If I employ him in my constituency, I have to pay him only £19,000 to £28,000. A senior parliamentary assistant can be paid up to £42,000 in London, whereas they can start on just £30,000 in my constituency. So the answer to the blogger is that MPs and their staff are already subject to regional variations in pay and allowances, and are living proof of the established principle of regional pay born out of different regional costs of living.

Let us put it the other way round: if the Opposition truly believe in national pay bargaining and public sector salaries being set nationally, will they intervene on me now to say that my staff in London should have their salaries reduced to match those of my staff in Cannock? Or should I be able to claim as much to live in a house in Cannock as to live a house in Cambridge? Of course not. Today’s debate is about whether public sector pay should be relative to private sector wages, and the simple truth is that it must.

The shadow Chief Secretary to the Treasury has said that regional pay will

“prove costly to the public purse and exacerbate regional inequalities”.

On the contrary, crowding out the private sector in the regions of our country is what will exacerbate regional inequalities, and setting a higher than locally appropriate wage bill means that public sector money is not allocated as effectively as it could be within local areas. I noted that she did not reply to the quote in my intervention, so I will repeat it to her now. Unison has said in its location-based pay differentiation paper of September 2011 that

“location-based pay systems offer increased flexibility and a systematic approach to addressing recruitment and retention issues at a local level.”

Government Members agree with Unison in that analysis, and I shall be interested to hear whether any Labour Members, many of whom will doubtless be taking donations from Unison to their constituency Labour parties, also do.

The Government are right to look at more local, market-facing pay and to end the anomaly of national pay bargaining—

Photo of Russell Brown Russell Brown Labour, Dumfries and Galloway 5:32 pm, 20th June 2012

Thank you, Madam Deputy Speaker. I regret that once again in this House I have to make mention of the fact that my constituency is a low-wage economy area. We talk about the “race to the bottom” and my locality does not have far to go in terms of it being a low-pay area. One of the greatest benefits to come to the area was the introduction of the national minimum wage in the late 90s. I sat on that Bill Committee, which sat through the night on more than one occasion. At that time, only one party was saying that we should have regional variations; I look across to the Liberal Benches because that was the case put by Lib Dem Members at that time. I am delighted that some on those Benches have had a change of heart.

Some 11,400 people are employed in the public sector in my area, which is some 28% of those employed in the constituency. We depend on the public sector in rural localities, so much so that there are occasions when we struggle to employ highly skilled people, be that in the NHS or in the local authority. The Government may be looking at reducing people’s salaries, but we already pay golden hellos for people to come to work in my area, such is the difficulty in recruiting quality people to the area.

The public sector pay arrangements support local and regional economies, ensure fairness and transparency, and support the whole concept of equal pay. When we introduced the national minimum wage in the late 90s, the greatest benefit came to those who were employed in the private sector. We went from scurrilously low wages of £1.50, £1.75 and £2 an hour to a wage that was recognised as being absolutely necessary to take people out of poverty. What came off the back of that? Additional money went into the local economy. It was calculated at the time that for every £1 million that went into a local economy, 39 jobs were created. What the coalition Government are considering would reverse that.

Mr Burley made his case and I would love to see what he would recognise as reasonable pay for any kind of job. He said that between 1997 and 2007, private sector jobs went down in number. His party recognises those years as the years of plenty, so if such jobs went down in number then, where on earth are we going now? If he is dependent on the private sector to get this country back on its feet, I am afraid that he is living in dreamland.

The debate is about regional variation, so I want quickly to mention Scotland. Although Scottish Ministers set pay policy for devolved bodies, some 30,000 public sector workers in Scotland are employed by UK Departments and could be affected by the UK Government’s policy on regional pay. Furthermore, there are many unanswered questions about Scottish separation risking uncertainty for those thousands of staff employed in Scotland.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries)

I would have liked to have been more supportive of what the hon. Gentleman is saying this afternoon, but I find the language and tone of the last part of his speech very disappointing. Does he welcome the minimum wage of £7.20 an hour that the Scottish Government introduced for public sector workers for whom they control pay?

Photo of Russell Brown Russell Brown Labour, Dumfries and Galloway

I mentioned that I was up through the night when the national minimum wage was introduced, and I must tell the hon. Lady that her colleague, Alasdair Morgan, who was the Member for Galloway and Upper Nithsdale at the time, was in his bed while the rest of us were battling for a national minimum wage in this country. She mentions the wage of £7.20 an hour and I am delighted that the SNP Government have followed the lead of Glasgow city council, which was where it originated.

The TUC has estimated that even a 1% reduction in public sector pay would hit 680,000 public sector workers. In Scotland, that would reduce incomes by £162 million. Again, I tell the hon. Member for Cannock Chase that if we take £162 million out of the local economy that must have an impact on private sector businesses. If we take the money out, the marketplace will collapse around it and further jobs will be lost.

I mentioned the Liberals and I am delighted that John Pugh is in the Chamber today. On 15 January this year, he said in the Financial Times that what the Government were considering was a “deliberate ploy” to fragment the public sector. He said:

“It is an unsound and untested economic theory to suggest that the national pay structure is crowding out private sector employment in the north and north-west.”

That goes for the length and breadth of this country. The proposals are a bad idea, verging on absolute insanity.

Photo of John Pugh John Pugh Liberal Democrat, Southport 5:38 pm, 20th June 2012

I thank Mr Brown for that introduction; I am not used to it.

The battle over regional and local pay is one, frankly, that in the current circumstances the coalition could do without. It would be a battle—a gruelling, energy sapping and pointless battle between and within parties. Even the Labour party is divided on its proposals for regional welfare. Opposition among the Liberal Democrats to the underlying principle and philosophy behind the suggestions is now widespread. We are not against the collection of evidence, but the evidence means that we are against the proposals. Shortly I and a number of colleagues will submit evidence that we hope will convince further. There was no problem recently getting 22 Liberal Democrat Members to sign a letter to The Times opposing regional pay, and of course those numbers were limited because our ministerial colleagues could not be asked to participate.

The politics of the proposal are lethal and divisive. It pits region against region, abandons the principle of equal pay for equal work, and treats the low-paid and local differently from the high-paid and mobile. The economics of it are nonsense, too, being bolstered largely by clichés and prejudice from the usual suspects—the Institute of Directors to name but one.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

It is refreshing to hear some common sense from the Liberal Democrats. The hon. Gentleman might be aware that a survey reported by the CBI suggests that 94% of private sector employers are concerned, above all, about markets and consumer demand for their goods and services, and the proposal would reduce consumer demand.

Photo of John Pugh John Pugh Liberal Democrat, Southport

That is certainly true, and a lot of UK national firms—building societies, banks and the like—do not have regional pay structures.

No one can dispute that reducing public sector pay in low-wage areas necessarily reduces the money spent, and therefore demand, in those areas. No one can dispute that putting relatively more money into the pockets of public sector workers in high-wage areas increases the money in circulation in those areas, and thus demand. Ultimately, economic division will be cemented in and, frankly, a good reason would be needed for doing that.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The hon. Gentleman said that no one would dispute his points, but I will. If more private sector employment is created, greater total pay is created in the region, thus increasing demand.

Photo of John Pugh John Pugh Liberal Democrat, Southport

That is my next point, because the only good reason for taking forward the approach would be if it was thought that it would improve private sector job opportunities in the poor regions on the basis that public sector jobs appear to be relatively well paid and crowd out private sector employment. If that is happening, one piece of essential evidence—one killer fact—is needed to show that, but it is not differences in the rates of pay in the two sectors, because that reflects a range of things such as job profiles and qualifications. We need evidence to show that as the number of public sector jobs increased in such regions, the number of unfilled vacancies for comparable employment in the private sector grew. That would be the clinching fact, but there is no such evidence. In fact, vacancies in the public sector in the north take longer to fill, because 50% of them are out for eight or more weeks compared with 15% in the private sector. Jobs that pay a living wage and for which skills exist get snapped up. Vacancies do not abound in the private sector except where there are definite skills shortages, and that is because of unemployment. There is no parallel difficulty with failing to fill public sector vacancies in better-off areas.

In the absence of that one piece of clinching evidence, which simply is not there, one could take a barrow-boy view that one could none the less get away with paying people less in the public sector in less advantaged areas, and especially get away with lower pay for the less well-paid, thus banking a cash saving for the state. I understand that argument, but it would be a wholly inappropriate way for a state to behave. It would be inappropriate for the state to discriminate simply by doing what can it get away with. We do not pay women or ethnic minorities less because they might be willing to work for less. If it was easy to get people to take the king’s shilling in the north, would we offer them sixpence instead?

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase

We already pay every public sector worker outside London less because of the long-established principle of the London weighting. Would the hon. Gentleman abolish the London weighting and pay everyone the same as people working in London?

Photo of John Pugh John Pugh Liberal Democrat, Southport

The special housing problems connected with London have been recognised for about 30 years. No one is arguing about that—it is not what the Government are arguing for, and it is not what divides the House.

I have been in politics for quite a long time and worked hard in my region. I have met oodles of people, worried and fretted about regional regeneration, met industrialists, attended forums and spoken to experts. However, no one outside London has ever said to me, “Do you know what we want in this area? What we really need is regional pay.”

Photo of Bill Esterson Bill Esterson Labour, Sefton Central 5:44 pm, 20th June 2012

Most business people I know want to pay well because they know that if they look after their staff, their staff will do a good job and help their businesses to thrive. If we apply the same principle to the public sector, paying people well and treating them well are both critical factors in delivering good public services, but undercutting pay, making it easier to fire people, and cutting 40,000 public sector jobs in the north-west are all decisions that sap morale and make people more fearful, making it less likely that services will be delivered well. It is also less likely that people will spend money when they are fearful, and that will harm the private sector businesses whose customers work in the public sector.

Many of my constituents work in the public sector and would like to know why regional pay is being proposed. For staff and their families in the north-west of England, regional pay would most likely mean that they would be paid less than colleagues elsewhere. There would be several consequences of such a change, and I shall explore some of the concerns about a move to local and regional pay.

The likelihood is that we would see regional inequalities made worse. Where unemployment is already high and where the recession has hit communities hardest, the introduction of regional pay would make matters worse. Lower pay in the poorest areas is what regional pay means, and the consequences are that the best performing staff would be able to earn more elsewhere. That means that it would be harder to recruit and to retain staff where they are most needed, unless the Minister wants to tell us that regional pay means higher pay in poorer areas. I do not think that is what we heard earlier.

Lower pay means less money going into the economy, again where it is most needed. Less money from lower pay means less money being spent in local businesses already struggling under the pressure of being in deprived areas suffering from a Downing street-made recession.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

Labour-led Redcar and Cleveland was one of the councils that failed to implement the April 2011 pay rise for low paid workers, meaning that their workers are now paid less than those in other localities. Did the hon. Gentleman’s council implement the pay rise? What does he think about councils that did not?

Photo of Bill Esterson Bill Esterson Labour, Sefton Central

The hon. Gentleman represents a Government who have cut the funds to councils in the north of England more than ever in history. Those cuts were front-loaded and we still have not seen the end of them, so he is not in any position to tell people on the Opposition Benches about the way that councils operate.

My hon. Friend Phil Wilson made the point that public sector jobs help to create private sector jobs. Indeed, there is research suggesting that every pound spent on public sector pay generates up to £1.50 elsewhere in the economy. When we consider the implications of regional pay, I start to see it as yet another way for the Government to make matters worse, not better, in the areas that need the most help. It will encourage staff, when choosing where to work, to go to the better-off areas and spend their money in places that have fared rather better in the recession.

I am sure Ministers take an evidence-based approach to their policies, so where is the evidence that a more fragmented system would be more efficient? A national negotiating system means a structured set of negotiations and a co-ordinated approach across regions. What, I wonder, is the analysis by Treasury Ministers of the cost of multiple pay review bodies at a local level? I wonder whether Ministers had made those calculations before they made their commitment in the autumn statement. It seems to me that we would see a complex and bureaucratic process for setting local pay that would take time and resources away from delivering vital public services.

If regional pay is introduced, it will mean lower pay in the north-west. In answer to Ian Swales, 40,000 jobs have already gone in the north-west as a result of cuts in the public sector. The north-west has seen twice the national average in cuts in jobs in the public sector, and any measure that cuts pay in the north-west will depress the economy and hit the living standards not just of the staff who lose pay but of the businesses that rely on them and of the people who work in those businesses too.

Lower pay for poorer regions will make it harder to attract the best staff and to keep them. It will mean less money for the staff and their families in already poor areas, and it will take more money out of the hardest hit local economies. As we have seen, the increased bureaucracy will mean higher costs.

The Government point to a gap between public and private sector pay, but the reality is that cutting public sector pay will make it easier for private sector employers, too, to cut pay in order to maintain the differential. In fact, the removal of money from the economy would put pressure on some private employers to do just that because of the depressing effect it would have on the economy. The Government say they want to rebalance the economy. If pay is cut in the poorest parts of the country for lower-paid and part-time public sector workers, many of whom have already lost their tax credits, the economy will be rebalanced all right, but not in a good way. It will be rebalanced so that it is further away from a fair and equal distribution than ever.

The Government should have nothing to do with regional pay. They should continue to work with the staff who do a good job serving our communities up and down the country. They should support those staff to ensure that they can continue to deliver excellent services, not undermine them by sapping their morale with such crazy suggestions.

Photo of Guy Opperman Guy Opperman Conservative, Hexham 5:50 pm, 20th June 2012

My entire career has been spent being part of the national health service. My grandmother was an NHS matron, and I came into politics when the hospital in which I was born and which saved my mother’s life was threatened with closure. In 2011 I was diagnosed with a tumour and spent several weeks in the London NHS hospitals. I saw all that was good in those hospitals and literally owe my life to the treatment I received. I will be for ever grateful.

If I took one thing in particular away from that experience, it was an understanding of just how many individuals are involved in making the whole process work. From the porter and the nurse to the physiotherapist, the care lady and the cleaner, everyone is just as important as each other. I think that all Members of the House should remember that when we talk about the public sector we are talking about not only the unions and Unite but the care lady who looks after our mothers and the dinner lady who keeps our children safe at lunch time and provides them with food. It is much more personal than the dry debates we engage in.

There are two key arguments in the debate, the first of which is economic. Having worked as a legal aid barrister or state prosecutor for 15 years, I should declare that I, like many public sector workers, am still owed money by the state, notwithstanding the fact that I stopped working for the state on a legal aid basis two years ago. It was during that time that I saw the effects of local pay, as it is described, and took into account the argument of the right hon. Member for Kirkcaldy and Cowdenbeath

(Mr Brown)—as usual, he is absent from his place—who first contemplated it in 2003 and then forced it on the Courts Service in 2007.

As with so many of the right hon. Gentleman’s economic policies, I see little evidence that local pay was a success. I have tried to study the economic argument behind it, which is based on the Heckscher-Ohlin factor proportions theory and various academic studies performed by august institutions such as the London School of Economics. I do not support such arguments, which are obscure at best and have not been shown to work in real terms. Also—surely this is the crucial point—it is not supported by businesses in my constituency, none of which has come to me to press for it.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

I agree entirely with everything my hon. Friend has said so far. The other reason we do not support regional pay is the facts. In our region, the Humber, we cannot get NHS workers to come and work and have to consider paying them more. A few years ago we could not get teachers to teach in the city of Hull and had to give them an enhanced salary to do it. Whatever the economics, the reality is that we cannot get some public sector workers to come to our region. How we would do that if we paid them even less is beyond me.

Photo of Guy Opperman Guy Opperman Conservative, Hexham

I also believe that regional pay is divisive and manifestly unfair. Members who read The Daily Telegraph today—obviously, that includes many on the Opposition Benches—will know that it has criticised me personally for leading the opposition to these divisive plans. It must be very rare to be criticised by The Daily Telegraph and praised by Phil Wilson all on the same day. I was interested when I read on to find that its argument is that pay distortions are

“economically destructive. They make it harder for businesses in the regions to recruit workers at competitive wage rates and as a consequence they stifle enterprise.”

That is not what individual businesses, whether small or large, in my constituency and elsewhere in the north-east are saying to me, however.

This Government, like previous Governments in 2003 and 2007, are right to look at all potential options for boosting growth, and I have no difficulty with them referring the matter for consideration by the pay review body, but ultimately this will not find business support or create the prospect of business growth in the regions that we represent, and we should not support it if it becomes Government policy.

The majority of public sector workers in my region are doing their bit already. They are hard working, and along with the vast majority of my constituents they accept that the Government are right to reduce the deficit, to cut public sector spending, to reform public sector pensions, to freeze pay in some areas and to eradicate some of the non-jobs and excesses that we saw before 2010. That is accepted.

Photo of David Mowat David Mowat Conservative, Warrington South

I agree with the thrust of my hon. Friend’s remarks. He cited the phrase “economically destructive”, but does he agree that what is also economically destructive is average public spending per head in London being 15% higher than in the north-west, and that if we wish to tackle the issue under discussion that would be a place to start?

Photo of Guy Opperman Guy Opperman Conservative, Hexham

I understand what my hon. Friend says and, to a degree, endorse it, but I do not accept that regional pay will be agreed to or supported by the public sector workers who are already experiencing their fair share of the problems that we all have to deal with.

What public sector workers and businesses want is continued investment in manufacturing, something that fell—effectively halved—under the previous Government; the groundbreaking reform of, and improvements to, our schools, and investment in the next generation; continued Government support for apprenticeships, the number of which in my constituency has doubled over the past year; and the maintenance of the Government’s focus on boosting exports, all of which are happening and making a difference to the regional economy.

I have always said that I will put the north-east first, and defending the pay and conditions of public sector workers in this economic climate is just as important as, if not more important than, building up the private sector. I do not deny that I come to this debate with strong opinions on what is economically right, but on this issue I have engaged with union leaders, businesses and local people, and others would be well advised so to do.

We need to be a one-nation coalition, and our focus should not shine too brightly on London and the south-east. We should represent all the people in our constituencies, from the dinner lady to the gentleman who employs 200 people; it is not an exclusive, either/or matter. On this issue, I look forward to the forthcoming visit to the north-east of The Daily Telegraph, which will doubtless come to question many businesses in my constituency.

I make it clear that I do not particularly support the policy under discussion, but I take no pleasure in these debates. This issue is too important to play politics with, so I hope that my friends on the Opposition Benches will spend more time with me, and with their union colleagues, making the case as to why regional pay is wrong, rather than trying to score cheap political points. This is about people’s jobs and pay packets, and I refuse to play any political games with those.

I will not, however, support the Government today, and if this matter were ever put forward as part of Government business, I would not support it.

Photo of Chris Williamson Chris Williamson Shadow Minister (Communities and Local Government) 5:58 pm, 20th June 2012

Make no mistake, Madam Deputy Speaker, the proposals for regional pay represent a naked ideological assault on public services and on public service workers. In my constituency, 11,800 people are employed in the public sector, representing more than 26% of its work force. Throughout Derby, 25,000-plus are employed in the public sector, and this is yet another example of the fact that this Government represent and stand up for the rich elite in our country, a Government who are prepared to give tax cuts to millionaires while forcing pay cuts on public sector workers.

I know from what Ministers have said that they want to weaken collective bargaining, but that makes no sense. It would be a wasteful approach to go down the road of regional pay because of all the duplication that would be necessary as a consequence of not having national pay bargaining regimes. It makes no economic sense either. Government Members have said that they see the economic recovery as being private sector led, but that ignores the symbiotic relationship between the public and private sectors. If huge demand is taken out of a local economy, that is bound to have knock-on implications for the private sector. This is a self-defeating proposition, because a private sector-led recovery will not be helped by attacking public service workers and undermining their salaries.

I am reading a book by Paul Krugman, a Nobel prize winner for economics, in which he says:

“disasters do happen; history is replete with floods and famines, earthquakes and tsunamis. What makes this disaster”— the economic crisis that we are living through—

“so terrible—what should make you angry—is that none of this need be happening. There has been no plague of locusts; we have not lost our technological know-how; America and Europe should be richer, not poorer, than they were five years ago.

Nor is the nature of the disaster mysterious. In the Great Depression leaders had an excuse: nobody really understood what was happening or how to fix it. Today’s leaders don’t have that excuse. We have both the knowledge and the tools to end this suffering.”

I have not finished reading the book, but as far as I can see, he clearly does not recommend regional pay as a way of economic salvation.

I know that Government Members revel in the sobriquet, “Thatcher’s children”. However, back in 1993, when John Major was Prime Minister, the Government of the day considered regional pay but saw sense when the Treasury obtained an advice note about the proposition that said:

“At the extreme, local pay in theory could mean devolving pay…to local bodies. In practice, extremely devolved arrangements are not desirable. There are risks of workers being treated differently for no good reason. There could be dangers of leapfrogging and parts of the public sector competing against each other for the best staff.”

Do we really want a situation where a hospital such as Queen’s medical centre, down the road in my constituency, is competing for staff with the Royal Derby? I do not think so.

Over the past few weeks this Government have developed a penchant for U-turns. I would very much welcome a U-turn on this policy, which will be utterly counter-productive and undermine morale in public services, which has already been terribly undermined by the Government’s economically disastrous policies. It simply will not work. I say this to the Government: listen to Paul Krugman and other eminent economists, do a U-turn, and abandon these ridiculous proposals for regional pay.

Several hon. Members:

rose —

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. To ensure that more Members are able to participate in the debate, the time limit is being reduced to four minutes as from now. I call Jacob Rees-Mogg.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset 6:03 pm, 20th June 2012

Thank you, Mr Deputy Speaker. I am sorry that you reduced the time limit just before I got up to speak; I will not take it personally.

We have heard that there is no evidence of crowding out, so I thought that I would provide some from Brian Groom’s column in the Financial Times this week. To be fair, I will give both sides of the evidence that he cites, which comes from a man called Henry Overman of the London School of Economics, who found that

“in 2003-07, each extra 100 jobs in the local authority spurred the creation of 50 additional jobs in private sector services, but destroyed 40 jobs in manufacturing.”

Over the longer period of 1999-2007, however, he found that the 100 extra jobs in the local authority destroyed 80 jobs in manufacturing and did not produce any net increase overall through jobs and services. The focus on public service jobs is destroying private sector jobs. I urge Her Majesty’s Government to go much further and to abolish national pay bargaining altogether.

Photo of Ian Swales Ian Swales Liberal Democrat, Redcar

I thank the hon. Gentleman for giving way and I am glad to be giving him an extra minute to speak. We are all familiar with the phenomenon of people connecting two disparate sets of statistics. Can he think of a mechanism by which adding 100 local authority jobs would destroy 80 jobs in manufacturing?

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

The reason increased employment in the public sector destroys jobs in the private sector is that every public sector job has to be paid for by the private sector. The public sector creates no wealth. It spends wealth that is taxed from the private sector. If it does not come from tax immediately, it comes from delayed taxation through borrowing. That is the connection. Increasing employment in the public sector increases the burden on the private sector and destroys the ability of the private sector to compete globally.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

I usually agree with my hon. Friend, but will he explain why a schoolteacher in Hull or Grimsby, who faces some of the most challenging schoolchildren in the country and even more challenging parents, should be paid less than a schoolteacher doing exactly the same job elsewhere in the country? That is the problem that my constituents have with this proposal.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

My hon. Friend makes a mistake in assuming that the policy will automatically lead to lower pay. Pay will be set by market forces. If it was difficult to employ schoolteachers in his constituency, teachers in that area would have to be paid more than the market rate until it had the required number of teachers.

Photo of Andrew Percy Andrew Percy Conservative, Brigg and Goole

There is not a bigger pot of money.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

Of course there is not a bigger pot of money, but if we allow competition to work, it will increase the local economy, which means that more money will be gathered in through council tax and the area will have the ability to pay more for the public sector that it needs.

The problem with what we are doing at the moment is that it impoverishes the poor. It keeps the poorest areas of the country poor for as long as possible. I know that Opposition Members and some of my hon. Friends are in favour of the current situation not because they want to keep the poorest areas poor, but for the most noble and romantic of motives. However, their noble approach to this issue is fundamentally wrong. They think that it is fair to ensure that everybody is paid the same, but if by doing that we destroy employment in certain areas and make more people dependent on the state, we are not acting in the broader interests of society.

Photo of David Mowat David Mowat Conservative, Warrington South

My hon. Friend’s analysis would be 100% right if there were proof that higher public sector pay was crowding out private sector growth. I have not heard that argument being made.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I gave a little bit of the evidence earlier, but it is the basic logic of economics that if there is a limited supply of labour and a high price is set for that labour in the public sector, it will be forced into the public sector rather than being available for the private sector.

If we set high wage rates for the public sector in the poorest areas of the country, the most able people will be attracted to the public sector, leaving them unavailable for the private sector, and it will set at an unaffordable level the rate that the private sector must pay to compete. The private sector will therefore move down to the south of England, where it is closer to so much other economic activity. If we want to create employment in areas of high unemployment, we have to make it attractive. It therefore has to be cheap. Otherwise, the magnetic pull of London and the region around it pulls employment down here. Those who really care about creating employment in impoverished areas should be in favour of getting rid of national pay bargaining.

National pay bargaining not only gets rid of competitiveness for the private sector, but pushes up all prices in the area. If there are highly paid public servants in poor areas of the country, the costs of housing and services are pushed up. The money that is spent by those people forces up prices and makes it increasingly difficult for the private sector to compete. That is the basic, unassailable logic of economics, and it will not be overcome by the mush of sentimentalism of those who think it is simply unfair to pay people different amounts. As my hon. Friend Mr Burley said, we accept that principle in other areas, such as with the London weighting. We need to go much further so that every school and every hospital decides the pay rates that it will give its employees. We should make it as local as it possibly can be, and in that way we will allow the private sector to flourish and bloom, the economy to grow and our overall situation to improve enormously.

Photo of Jim Sheridan Jim Sheridan Labour, Paisley and Renfrewshire North 6:10 pm, 20th June 2012

It was extremely interesting to hear the contributions of the hon. Members for Hexham (Guy Opperman) and for Brigg and Goole (Andrew Percy). All that I can say is that there is room for them on the Labour Benches should they wish to come across. We even have our own private section should they wish to make progress.

Tomorrow, the House will pay tribute to Aung San Suu Kyi, and no doubt Ministers and Government Members will be pushing forward to get their pictures taken with her for their press releases. They should remember what she has stood for—fairness for workers, regardless of their social background or where they come from. When Members are speaking to her tomorrow, perhaps they will remember that.

Any sensible, decent Government have a responsibility to promote fair employment, and that cannot be done by paying nurses, teachers, jobcentre staff and so on less to work in poorer parts of the country. Indeed, regional or local pay could mean two workers with the same skills and experience being paid differently in two different places even though they were doing the same job. It could worsen inequalities between regions by making it difficult to attract and retain skilled public sector workers in low-pay regions.

Local or regional pay could also work against equal pay. The gender pay gap is smaller in the public sector than in the private sector, and great progress has been made towards promoting equal pay through measures such as “Agenda for Change”.

Perhaps the Economic Secretary could answer a practical question. If an employee of the Ministry of Defence worked as a civil servant or engineer at Faslane and then was transferred to Portsmouth, would their pay vary accordingly either up or down? Who would pick up the administration costs if that were to happen?

The other major concern that people have is about the minimum wage. The Minister for the Cabinet Office has sought to reassure the House that regional pay will not have an impact on the minimum wage, but we have to remember that there are still Government Members arguing that there should be exemptions from the minimum wage. I am sure that there are a number of unscrupulous employers who will see regional pay as an opportunity to undercut people’s wages and exempt them from the minimum wage legislation.

The case for regional pay is not even backed up by evidence. I have spoken to a number of local employers in my patch, and, in the nearly 10 years I have been here, I have never had one employer come forward to say that the reason they have difficulties employing people is the lack of regional pay. That is a non-starter, so regional pay is not evidence-based at all. Perhaps the Economic Secretary will explain exactly where the evidence has come from.

I know that time is short and other Members want to speak, but I want to say in the nicest possible way to my colleague from the Scottish National party, Dr Whiteford, that nice person though she is, if the SNP’s ambition and aspiration is to pay a higher minimum wage in Scotland, it has had the opportunity to do so during the time it has been in government. Unfortunately, it has chosen not to do that. It therefore remains an aspiration, because the SNP has not implemented it. The few local authorities that have implemented it have had their budgets cut, which shows exactly what it is all about for the SNP. It does not care for the workers, it does not work for the workers and it very seldom turns up for the workers.

Photo of Elizabeth Truss Elizabeth Truss Conservative, South West Norfolk 6:14 pm, 20th June 2012

Our country’s human capital is becoming more vital to our growth and there is an increasing return to skills in jobs across the world. To have a flexible modern economy, it is vital we have a functional labour market in which there are clear signals about what skills we need and where we need them. The idea, in this day and age, that we can have a one-size-fits-all deal for all locations and all performances across the country is wrong.

We face growing international competition—interestingly, Opposition Members made no mention of what is going on around the world and the competitive pressures we face. Countries such as China, Brazil and India are developing highly skilled people, and the UK’s labour force is already 11% less productive than the G7 average. Western competitors such as Canada, Germany and Sweden are reforming their labour markets. In the 1990s, Sweden abolished national pay scales and gave everybody individual contracts. Salaries in professions that were short of supply rose, so kindergarten teachers’ and tax inspectors’ salaries went up. That did not happen overnight, but the change allowed for the adjustment. Places could get the workers they needed with the skills they needed. The contracts were supported by the unions, even though they had trepidations at first. Once individual contracts were in place, the unions acknowledged that they were a good thing.

There have been extensive labour market reforms in Germany, including the introduction of mini and midi-jobs and exempting small companies from labour regulations. Huge labour market reforms and a highly devolved system of wage bargaining were introduced in Canada in the mid-1990s.

Countries such as Sweden and Canada are not pay-the-bottom-price countries, but countries with highly skilled and flexible labour forces. That is what this country should aim for, rather than a one-size-fits-all model. Under the previous Government, there was greater centralisation, with the exception of academies. There was a national agreement on teachers’ pay and conditions in 2003, which made it much more difficult for schools to organise their work forces. The GP contracts signed in 2004 were disastrous. Such national pay bargaining has made our country’s labour force inefficient and damaged regional economies.

We have skill shortages in key professions. Schools in my constituency struggle to recruit maths teachers. They are subject to national pay scales, so they cannot pay the extra money they need to pay to get the teacher into the school. Therefore, students in my constituency lose out on vital education that they would have were the school allowed to change the wage scales.

My hon. Friend Mr Burley made a good point about private sector crowding-out. Paying people over the odds of their market wages in places where we could get better value for money is not the best use of public money. The money is not free; it comes from hard-working people who pay their taxes.

Photo of Aidan Burley Aidan Burley Conservative, Cannock Chase

Does my hon. Friend agree that paying people above what is necessary to retain and recruit them is economically inefficient, and that more public sector workers could be employed in her constituency with the same pot of money if people could be paid less?

Photo of Elizabeth Truss Elizabeth Truss Conservative, South West Norfolk

I completely agree with my hon. Friend. Opposition Members do not acknowledge that this country’s unemployment rates are higher compared with countries that have taken action and reformed their labour markets, such as Germany. Those countries have reduced the differentials between different areas.

Photo of Elizabeth Truss Elizabeth Truss Conservative, South West Norfolk

I want to continue because we have only a limited amount of time in the debate.

The Government need to be bold in their approach. We need to move from national wage bargaining to individual contracts, as Sweden did. That change was well received by the unions and public sector workers. We need to move to flexi-jobs, similar to German mini and midi-jobs, which have reduced unemployment by half since 2005. We need seriously to look at exempting small businesses with under 10 workers from some dismissal regulations, as Germany did—the change reduced unemployment. The time to take bold action is now.

Photo of Jessica Morden Jessica Morden Labour, Newport East 6:19 pm, 20th June 2012

In the short time available, I want to talk about regional pay in Wales and my constituency.

Over recent weeks, we have been led to believe that the coalition is cooling on the idea of regional pay and that we might be heading for another U-turn. I hope so, but I welcome the chance to reiterate just how unfair, divisive and damaging such proposals would be for constituencies such as mine. If there is to be a change of heart, the message clearly has not got through to the Wales Office, which this morning mounted a valiant defence of regional pay in the Welsh Grand Committee, although the Secretary of State for Wales told us off for calling it regional pay; she said we should call it “local market-facing pay”—she had obviously read the crib sheet. Having listened to the Minister’s definition, which was as clear as mud, I am none the wiser.

Whatever it is called, it is fair to assume that it would not be good news for public sector workers. The direction of travel is clearly downwards. The First Minister for Wales, Carwyn Jones, was spot on when he said it was code for cutting pay in Wales. Wales has 399,000 public sector employees, but the Secretary of State admitted this morning that she would not be fighting their corner on this issue, despite the fact that her party opposes it in the Welsh Assembly—in fact, all parties in the Welsh Assembly are united in opposition to it.

Let us not forget that these are nurses, teachers and police officers who already face two years of pay freezes and job cuts and who will have to endure a further pay cut of 1%, not to mention the Government’s pension reforms.

Photo of Jessica Morden Jessica Morden Labour, Newport East

We are pushed for time, and if I give way, I will prevent someone else from getting in, so I will kindly say no.

We have had 9,000 public sector job cuts in Wales, and there are 39,000 more to come, according to the TUC. The stock argument for the Government’s proposal is that it would allow the private sector to grow by enabling it to compete with the public sector for staff. This is clearly nonsense in constituencies such as mine, where any move on regional pay would hurt the economy, including the private sector.

Photo of Jessica Morden Jessica Morden Labour, Newport East

I will give way to my hon. Friend, because he will not get a chance to make a speech, whereas Mr Burley has already spoken.

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons)

I hope that Elizabeth Truss understands that Opposition Members know about globalisation and its effect on the private sector. Hitachi, a big global company, is coming to the north-east of England, but it is not considering local pay; it is considering sectoral pay rates and skills, and looking across the train-building industry. It is not looking locally.

Photo of Jessica Morden Jessica Morden Labour, Newport East

I thank my hon. Friend for his intervention. I am sorry he has not had a chance to make his contribution. He is exactly right.

The TUC has estimated that a 1% reduction in public sector pay could result in £97 million being taken out of the Welsh economy. In constituencies such as mine, the public and private sectors are inextricably linked, and money taken out of the public sector hurts the private sector. Members should not just take our word for it; over the past few weeks, the Federation of Small Businesses in Wales has come out in opposition to regional pay. We saw this firsthand in Newport, when the Government were forced to concede over closing Newport passport office with the possible loss of 300 jobs. The Government conceded then that the closure would have a huge impact on our local economy, and many small local businesses were right at the heart of the campaign to keep the passport office open, because they knew full well that their livelihoods depended on it.

There are 23,000 public sector workers in Newport. It has a lot of public sector jobs precisely because of the previous Government’s policy, following the Lyons review, of moving jobs from the south-east to rebalance the economy. As a result, our major employers, as well as the NHS and the local authority, are the Office for National Statistics, the Prison Service and the Intellectual Property Office, to name but a few. This has been a boost to our city and is a real success story. As an ONS worker said to me recently, however, does paying him less mean that the private sector in Newport will suddenly be clamouring for statisticians? We both thought not.

Of course, regional pay is plain unfair. I have a border constituency. If I have two teachers in my constituency, one working in Caldicot, the other in Bristol, with the same skills and experience but paid differently, that is clearly unfair. Let us remember that these people are not hugely well paid—they are often on wages of about £20,000—and would find it difficult to move jobs if this measure was implemented.

Finally, comparing private and public sector pay is not comparing like with like. There are more people with higher qualifications in the public sector than in the private sector, and women, who make up 64% of the public sector work force in Wales and 87% of part-time workers, have very much benefited from the previous Government’s efforts on equal pay. I ask the Government please not to target these women and roll back progress on them. Regional pay, local market-facing pay, or whatever the Government want to call it, will be a race to the bottom on lower pay, and create higher unemployment and more business failures. It is a real pity that we do not have a Secretary of State for Wales willing to stand up and say that.

Several hon. Members:

rose —

Photo of Stephen Gilbert Stephen Gilbert Liberal Democrat, St Austell and Newquay 6:24 pm, 20th June 2012

I have struggled with two things during this debate. The first is finding anything that the Minister said earlier that I agreed with; the second is finding anything that the Opposition spokesperson said that I did not agree with. However, you will be pleased to know, Mr Deputy Speaker, that I have managed to resolve both struggles. I do not think it fair or right for our Opposition colleagues, however passionately they care about the issue, to be opportunistic in their pursuit of it. I also found two things that the Minister said that I agree with. First, I am pleased that the Government are clear that no decision has been taken yet on this issue. The second thing I welcome is the fact that any decision the Government take will be evidence-based. Like other hon. colleagues, speaking from all parts of the House today, I am sure that when the evidence is in and the process is complete, it will show that the proposal is not one that the Government should go forward with.

I would welcome local pay bargaining and regional pay if it meant that we were able to pay the hard-working nurses, firemen and policemen in my constituency more money. The reality, as my hon. Friend Andrew Percy said, is that there is no extra money around. We know from what the Minister said earlier that this proposal is not a revenue-saving measure. There would have to be a redistributive effect, using what is in the current pot. That means that there would be some winners, often in areas that are already wealthy, and some losers, principally in communities and constituencies such as mine.

Cornwall is one of only four parts of our country that qualify for poverty-related grants from the European Union. My constituents face many significant challenges already, with the decline of traditional industries, high housing costs, high water costs, high fuel costs, a lack of opportunity and too few skilled jobs. It is sad to think that the 57,000 public sector workers in Cornwall could be facing another challenge. These people are valued in our community, and I will not let Members from any part of this House play one part of our community off against another. We must not let this debate come down to a division between the public and the private sectors. For a healthy community we need both, and we need them to be working in tandem.

I do not often disagree with my hon. Friend Mr Burley, but I fear that if we went forward with this proposal, we would see a race to the bottom in Cornwall. That is why I will not support the Government this evening. Indeed, the public sector in Cornwall offers some of the fairest pay available. With five people chasing every job, introducing local pay, regional pay or local market-facing pay—or whatever we are calling it this evening—could, I fear, have not only a damaging effect on our hard-working public servants, but a deleterious effect on the local economy. As my hon. Friend John Pugh said earlier, some people have suggested that as much as £1.7 billion could be lost from the poorest parts of our communities. The money lost would be money that would otherwise have gone into the private businesses that we are also keen to see thriving on our high streets, thereby making recovery and growth in our economy still harder.

I hope that the Minister will be able to shed some light on this point in her closing remarks, but I cannot see how moving to local, regional or local market-facing pay could be less bureaucratic and burdensome than the current arrangements. It seems to me a statement of the obvious that moving to such a system would be more complicated and harder to introduce.

The ramifications of the proposed change for Cornwall are great, and I will oppose it every step of the way.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence) 6:28 pm, 20th June 2012

As with so much of what this Government are doing, the proposal that we are discussing is tainted by their incompetence and their inability to think things through and fully understand—or, indeed, accept—the perverse outcomes that will result. We have seen it with council tax benefit, housing benefit changes and the rushed strategic defence and security review.

Despite the view commonly held, the south-west has serious poverty. There was a reason why Cornwall had objective 1 status and is a convergence area. Plymouth had the poorest ward in the country in the 1990s. We may not have the dark satanic mills of the north, but there are certainly massive disparities in wealth, which will be further exacerbated should this proposal be rolled out nationally.

The Minister mentioned the previous Government’s consideration of differential pay rates. Indeed, the coalition seems to be clinging to that argument and using it as a security blanket, an excuse for its attempt to take this proposal further. The idea was not extended beyond the courts service, and there are clearly good reasons for that.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

No, sit down. You’ve had your opportunity.

There are other historical examples of this policy. In the 1990s, the Conservative Government asked the NHS to look into the subject, but after a year’s work, it could find only a 0.1% variation between the regions. That was not the best way for the NHS to spend its time and money.

Hon. Members:

Oh!

Photo of Gemma Doyle Gemma Doyle Shadow Minister (Defence)

I am grateful to my hon. Friend for giving way. Some Members have had longer to speak in the debate than others. Like her, I am outraged by the suggestion that my constituents should be paid less for doing their job than those in other areas. Does she agree that, if nationalist Members were to get their way, they would achieve overnight what the Tories and Lib Dems are seeking, because public sector workers in a separate Scotland would have no guarantees whatever on their wages?

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

I thank my hon. Friend for her intervention. She is not going to have an opportunity to make a speech, owing to time constraints, but I am sure that the Scottish people will have heard her comment.

Median pay in the south-west is already £14 a week less than the national average. Many of the public sector workers there have also been the subject of pay freezes, pay caps or pension contribution increases, all of which have reduced their spending power. Plymouth is a city that is heavily dependent on the public sector; the hospital is the largest employer. There is real concern there about the damage that a decision to reduce wage levels in the region, or locally, could have on an economy that is just about keeping its head above water.

Photo of Shabana Mahmood Shabana Mahmood Shadow Minister (Business, Innovation and Skills)

We have heard a lot about the private sector from Government Members, but does my hon. Friend believe that it would be instructive to note that many large national private sector employers have pay bargaining practices that are not dissimilar to those of the public sector?

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

Indeed; I shall touch on that point briefly later.

More than 18,000 people in Plymouth work in the public sector. In my constituency, a massive 25% of the working population do so—one in four people—and to dampen pay rates could be devastating. The Government’s suggestion that it is easy to compare private sector and public sector jobs is absolute nonsense. In the south-west, large swathes of people work in the hospitality and agriculture sectors, earning very low wages. There is no simple read-across, and I would ask the Government to consider that fact carefully.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

No, I am afraid that I cannot. Perhaps one of the hon. Gentleman’s colleagues will allow him to intervene on them later.

In his autumn statement, the Chancellor talked about private sector pay being set in accordance with local labour markets. That is not true. As my hon. Friend Shabana Mahmood has just pointed out, some of the most successful companies in the country, including large retailers, banks and telecoms companies, use similar national pay structures.

There is genuine concern among businesses in my constituency that any decision to cap or lower public sector pay will lead to problems for them, in that there will be less demand for their goods and services as families pull in their horns.

Photo of Alison Seabeck Alison Seabeck Shadow Minister (Defence)

I am afraid not; my hon. Friend has only just arrived in the Chamber.

A representative of one business has commented to me:

“As I see it, the lot in power have proved that they don’t get reality.”

Because the south-west is very beautiful, we have a large number of second homes. They push the cost of housing up to levels on a par with those in the south-east, but our salaries are lower and so the mortgage multiplier for our potential homeowners is astronomical. That can be crippling for people desperate for a home; the effect is felt not only in Plymouth but in the rural south-west. That point was well made by my right hon. Friend Mr Bradshaw.

In the South Hams, the house price to income ratio is around 17:1. In the Cotswolds, it is even higher, at closer to 19:1, and those are figures taken at the depth of the recession in 2010. We should remember that many of the public sector workers who work in Plymouth and Exeter live in areas such as the South Hams. They might have struggled to get a mortgage on their dream home in better times, and they will be disproportionately hit by this Government’s proposals on regional pay. The housing market will not allow them to sell their home and move—I am sure that my hon. Friend Jack Dromey was going to make this point— particularly when new affordable homes are not being built. What are those people to do, when their pay is either cut or frozen and meeting their mortgage payments becomes increasingly difficult? They will stop spending in local shops, hotels and pubs, and on entertainment. That will provide a direct hit on the local economy.

This was a complex matter for the NHS to consider all those years ago, and I urge the Government to be aware of the complexity of boundaries and of the additional costs involved in the work required to ensure that the proposal is consistent and does not lead to poaching or leapfrogging. They are on a hiding to nothing on this one; it will create anomalies and provide yet another example of their incompetence. Every time this happens, however, it is not the Chancellor or the Paymaster General and his mates who are affected, but low-paid working people such as teachers, nurses and midwives.

Photo of Guto Bebb Guto Bebb Conservative, Aberconwy 6:35 pm, 20th June 2012

I come to this debate with a question mark over whether I can support this policy. I share my doubts with many Conservative Welsh Assembly Members. However, I shall not support the Labour motion today, as it is, to say the least, an example of double standards that is quite surprising even by this House’s standards. In common with Jessica Morden, I have spent most of today in the Welsh Grand Committee, where we discussed regional pay for a long time. I found the comments of Mr Hanson, who is not in his place, quite surprising. He was vocal in his criticism of the concept of regional pay, yet when he was a Minister in the previous Labour Government, of course, he was responsible for bringing in regional pay in the Court Service.

When I debated the matter with the new shadow Secretary of State for Wales on Radio Wales, Owen Smith said that what was done to the Court Service was not regional pay, but zonal pay. Zonal pay is clearly acceptable to the Labour party, but not regional pay. It should be noted that the five levels of zonal pay within the Court Service vary by 23% for people doing the same work. I thus find the

Labour party’s comments and its anger on this issue surprising, given that it introduced this proposal for the Court Service in 2007. What is more, the Labour Government did the same for Department for Work and Pensions staff back in 2003. That is why I am surprised that Labour Members view these proposals with such horror.

When Chris Williamson calls on the Government to make a U-turn, I am absolutely staggered. How can a Government make a U-turn on a proposal to consult and to do some research? I would have thought that Members would be proud of a Government who say, “Before we enact a policy, we will do the research and ensure that we come to the table with the facts.” If those facts show a strong argument for changing the current situation, that argument can be made, but to say no to doing the research is, to say the least, extremely surprising.

Other comments made in the debate are worth mentioning. I listened very carefully to my hon. Friend Jacob Rees-Mogg and I was quite taken by his passionate argument in favour of localised pay. The key question I would ask is this. I have a constituency that depends fairly significantly on the public sector, but one that also has a comparatively low-paid economy in respect of the tourism sector. My concern is the fact that we have open borders for the movement of workers from across the European Union and that what has tended to happen in my constituency is that comparatively low-paid jobs have been filled by people from other parts of Europe who are willing to come into this country to work. I question whether, with those open borders, the expected effect of having a more local pay bargaining structure would work as my hon. Friend envisaged. That is the question I have, but I am sure that the research we undertake will show whether that is the issue or not.

We have heard a lot in the debate about Labour Members’ concern for the lower-paid public sector workers, and I share it. My only question, as someone who sat on the Welfare Reform Public Bill Committee for several weeks and contributed to many of the debates on the welfare reform agenda, is how Labour Members can make so much capital in today’s debate about their support for lower-paid public sector workers, when they were more than happy to argue in debates about the benefits cap for a regional benefits payment structure. If they genuinely support people on lower salaries and lower incomes, I wonder why they did not defend the benefit recipients in my constituency when they were more than happy to defend union members who happen to work in the public sector.

Several hon. Members:

rose —

Photo of Phil Wilson Phil Wilson Opposition Assistant Whip (Commons) 6:38 pm, 20th June 2012

Thank you, Mr Deputy Speaker, for that generous offer.

We have heard from Government Members that, on the one hand, we introduced regional pay, yet on the other hand that we have a one-size-fits-all system, making it either one or the other. As far as I am concerned, this is not about public sector versus private sector; it is about what is fair for people in whatever sector they happen to work in. Let us think about the situation in County Durham. Unemployment in Sedgefield has risen by nearly 25% in the last year, and the number of people out of work for more than six months has risen by 100%. Moreover, 120,000 households in County Durham will be hit by benefit changes which will take £151 million from the local economy. The average wage is £418 a week, which is well below the national average. Regional pay will not benefit local businesses, because there will no longer be any drive for people to buy anything that is manufactured or created in the area. As for the idea that there are no national pay schemes in the private sector, Tesco has one and so has Nissan. They will not be looking only at local pay rates; they will be looking at the sector in other parts of the country as well, and also at skills.

I believe that this proposal is ideologically driven, and that it makes no economic sense whatsoever. I agree with Guy Opperman. Early-day motion 55, which I sponsored, was signed by Members on both sides of the House, and it is clear that there is a great deal of cross-party opposition to the measure. I strongly urge the Government to withdraw it and to think about what is fair to not just the public sector but the private sector, because this measure will damage both sectors if it goes ahead.

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland 6:41 pm, 20th June 2012

This has been a lively and revealing debate, during which Members on both sides of the House have made promising speeches. I pay tribute to my hon. Friends the Members for Easington (Grahame M. Morris), for Dumfries and Galloway (Mr Brown), for Sefton Central (Bill Esterson), for Derby North (Chris Williamson), for Paisley and Renfrewshire North (Jim Sheridan), for Newport East (Jessica Morden), for Plymouth, Moor View (Alison Seabeck) and for Sedgefield (Phil Wilson), who spoke with commitment and determination. I shall refer to Government Members later in my speech.

The lines were clearly drawn in this interesting debate. I was reminded of my youth, when I listened to the great Thatcherites on the other side of the Chamber. So much for detoxification: the Thatcherites are back in power, revealing that the main purpose of this policy is to drive down the wages of public sector workers throughout the United Kingdom.

Photo of Brian H Donohoe Brian H Donohoe Labour, Central Ayrshire

In an intervention I said that Whitleyism was a good thing. I did not realise that John Whitley was one of the predecessors of Mr Speaker in this august body and a Liberal Member of Parliament, and was responsible for the introduction of national wage negotiation. Does my hon. Friend not think that he was right?

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

I thank my hon. Friend for, as ever, making a stunning intervention.

The debate has another Scottish dimension. It is very disappointing that only one Scottish National party Member is present. The point was made earlier that the fastest way to break up national pay bargaining in the United Kingdom is to break up the United Kingdom, and that should be remembered.

Photo of Eilidh Whiteford Eilidh Whiteford Shadow SNP Spokesperson (International Development), Shadow SNP Spokesperson (Women), Shadow SNP Spokesperson (Work and Pensions), Shadow SNP Spokesperson (Agriculture and Fisheries)

We heard this afternoon that the idea of regional pay was first mooted by a Labour Chancellor, the hon. Lady’s friend Mr Brown, who, as others have noted, is not present. It is a particular kind of brass neck to rewrite history quite so blatantly.

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

While we are on the subject of party leaders, perhaps the hon. Lady, who is a member of the SNP, will tell us why the First Minister of Scotland is very clear about the levels of corporation tax that will be paid in Scotland and what banks will pay, but never seems to be able to tell us what the level of public pay in Scotland will be. Is it not time that the SNP was clear about that?

The debate has also featured the now predictable undermining of Government policy by the Liberal Democrats—or so it would seem from the outside. We must ask ourselves exactly what is going on in this Government. We have omnishambles and U-turns, splits in briefings, and the announcement of a policy one day only for it to be questioned minutes later. The shadow Chief Secretary to the Treasury and I both have the pleasure of shadowing Liberal Democrat Ministers, both of them Scottish at that, but where are they today?

I have been in the House for only a short time, but I have learnt one thing. When the Minister for the Cabinet Office and Paymaster General is at the Dispatch Box, it is a clear sign that the Government are in trouble , so we have to ask ourselves why the Lib Dems are not prepared to do their job by coming to the Chamber and defending this Government—are they off the hook just because they are Lib Dems?

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

I do not have time.

To be fair, the disagreements over the Government’s approach are not just between Lib Dems and Tories; there are also differences within the Tory party itself, as was made clear by Guy Opperman, in what was a powerful and sincere contribution.

In a recent vote in the Welsh Assembly, the Tories voted against regional pay and pointed out the damage they thought it would do in Wales. Tory Finance spokesperson Paul Davies stated:

“As a group, we have not seen any evidence at all of the benefits of introducing a regional pay system in the United Kingdom.”

In the now-infamous Budget, the Chancellor clearly signalled support for the break-up of the national pay negotiating machinery. Have we now reached a stage where the Chancellor of the Exchequer cannot command support among the Tories in the Chamber, or, indeed, the country?

As we have heard in this debate, there are grave concerns about the real purpose behind the Chancellor’s comments. As many Members have said, it would appear that the Government wish to deliver a cut in the cost of public sector employment on the dubious premise that it will produce a private sector recovery and economic growth throughout the UK.

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

I do not have time.

As has been pointed out in the debate, the Government have not produced a shred of evidence that a pay bargaining free-for-all would increase the number of private sector jobs, deliver more vibrant local economies or open up access to jobs or opportunities. In fact, the chief economist of the Welsh Government recently demonstrated that age and gender can be as significant factors as local geography, and that if we were to address regional pay differences, we would need to introduce disproportionate changes and reduce the pay of low-paid women. So much for the Tories embracing gender equality!

Perhaps we can hope that the Government will listen to the sensible calls that have been made on this, so that the U-turn on regional pay that has been hinted at becomes a reality. Perhaps the absence of the two Lib Dem Cabinet Ministers augurs well in that regard. The last thing we need in these very difficult times is to drive down wages even further based on the age-old fallacy that the public and private sectors are always to be in competition with each other.

Mr Burley implied that public sector workers do not have real jobs. That tells us all we need to know about Tory attitudes to police officers and teachers. I call on the Minister to dissociate herself from those comments.

The Opposition motion should be supported by all Members who do not want to exacerbate the north-south divide, who want to ensure that we maintain fairness in public sector pay, and who want to stand up for the interests of working people from Cardiff to Newcastle to Dundee. They should challenge this Government and support the Opposition motion.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury 6:48 pm, 20th June 2012

This has been an interesting and lively debate. My hon. Friend Mr Burley rightly disavowed a race to the bottom and instead seeks a race to reality. On the other hand, Mr Brown thinks private sector rebalancing is dreamland. My hon. Friend Guy Opperman made a thoughtful, and personal, contribution. My hon. Friend Elizabeth Truss raised international examples in a very well-informed contribution. My hon. Friend Stephen Gilbert talked of the need for an evidence-based approach and eschewed opportunistic and divisive debate, hints of which we have heard this afternoon.

We also heard from my hon. Friend Guto Bebb, who referred to days that we shared on the Welfare Reform Bill and wondered why the Opposition did not support the idea of capping benefits. Perhaps they may tell us today why they favour regionalising benefits but not pay.

Let me talk about what this Government have done, as I wrap up this debate. As my right hon. Friend the Minister for the Cabinet Office and Paymaster General said, this Government greatly value the work and dedication of public sector staff. However, at a time when private sector workers are living with falling wages and job uncertainty, and given the wider pressures we face on the public finances overall, there is a strong case for public sector pay bill restraint. This is why, at the autumn statement, we announced that public sector pay awards will average 1% for the two years following the end of the current public sector pay freeze.

It is also important to look at how public sector pay is set over the longer term. This is why, at the autumn statement, the Chancellor announced that there was a case for considering how local pay can better reflect private sector labour markets and invited the independent pay review bodies to consider the evidence. They will report back from July, and the Government will then consider their proposals. Nothing has yet been decided, and as my right hon. Friend the Minister for the Cabinet Office said, any proposals for each work force will need to be based on strong evidence.

However, it is clear that there is a case for looking at the issue. The pay review bodies have been asked to consider ways to recruit, retain and motivate suitably able and qualified staff across the UK.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Perhaps the hon. Lady is going to tell me that she is not in favour of that.

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

Can we make it that I do not think the Chancellor was suggesting just that more research should be undertaken when he made his statement? Does the hon. Lady believe that a police officer in Hexham should be paid more or less than a police officer in Norwich?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I will say, for the hon. Lady’s benefit, what I have already said: I look forward to the results of the research that the pay review bodies will be doing.

The gap between public and private sector pay varies significantly around the country, with the Institute for Fiscal Studies calculating a variation of up to 18%. That situation could needlessly limit the number of jobs, including perhaps those of police officers, that the public sector can support, and therefore the services that can be supplied. In addition, it could lead to unfair variations in the quality of public services through higher vacancy and turnover rates in some areas. Finally, it could also hurt the private sector, which often needs to compete for staff with the public sector. The CBI has said that it is essential to compete and that the Chancellor was right to ask for the exploration of the issue.

The need for pay levels that reflect local labour markets was of course recognised by the previous Government, when they took forward pay reform in the Courts Service. I will just dwell on that, because it has been discussed this afternoon. I suspect that the hon. Lady is not familiar with the fact that staff were given a choice about whether to opt in or out of that reform at that time, and the opt-in rate rose to 97% over 12 months. That is something to be welcomed. Let me jog memories further. The then Chancellor, Mr Brown, who is again not in his place, set out plans. He said that in our country

“it makes sense to recognise that a more considered approach to local and regional conditions in pay offers the best modern route to full employment.”

Labour Members will wish to reflect on those words.

Photo of Jim Sheridan Jim Sheridan Labour, Paisley and Renfrewshire North

May I remind the hon. Lady that the previous Government introduced the national minimum wage? Does she agree or disagree with Andrea Leadsom, who seeks exemptions for employers to exclude people from the minimum wage?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I agree with what my right hon. Friend the Minister for the Cabinet Office said earlier, which was that this Government and the Conservative party fully support the national minimum wage.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

Does the hon. Gentleman still think that we are all in dreamland when we seek to support the private sector?

Photo of Russell Brown Russell Brown Labour, Dumfries and Galloway

I have no doubts in my mind that some are. The hon. Lady says that the Conservative party supports the national minimum wage, but will she guarantee that it will not be frozen for years to come?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

If I tried to answer that question, I suspect that I would soon end up outside the scope of the debate. It is particularly important to note that we need to consider evidence, which the Chancellor has asked for by asking the pay review bodies to consider the question. That evidence would come into the answer to the hon. Gentleman’s question.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I will not give way. The hon. Gentleman should rest his foot, as I had to myself several months ago. I wish him well and a speedy recovery.

It is somewhat troubling that shadow Ministers have not been able to explain whether they think it is good for small businesses in their constituency that the public sector pays 7.5% more overall than the private sector. They have not been able to explain, as I have mentioned, why they favour regionalising benefits and not pay. Perhaps they will surprise us all and stand firm against attempts to appease the unions, wait for the pay review bodies’ reports and take a mature decision based on the evidence available. That is what this Government will do. We do not seek to cave in to those who have given around £15 million to the Labour party in recent times.

The introduction of local and market-facing pay could help poorer regions, which I know Members on both sides of the House would welcome. It could do that by providing more public sector jobs for the same level of investment and by helping the local private sector to become more competitive and to expand. Tonight’s debate should not be about regional pay, about ending national pay bargaining or about cutting anybody’s pay. The Government recognise that public sector pay is a complex issue that varies significantly between public sector work forces.

Photo of Margaret Curran Margaret Curran Shadow Secretary of State for Scotland

Will the Minister explain at what level market-facing pay would be set for a police officer?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

The motion rests on a misrepresentation of the notion of regional or local, and the hon. Lady is attempting a second misrepresentation by bringing police officers in at this point, when the debate ought to be about the NHS and teachers, and the civil service where it is under the control of central Government. She should know that.

Let me return to what the Government have done and complete my comments. The Government recognise that public sector pay is a complex issue that requires an evidential approach and varies significantly between public sector work forces. That is why we have asked the independent pay review bodies to consider the issue and why any decision will be based on the evidence. That is why we look forward to the outcome when the review bodies report next month.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.

The House divided:

Ayes 226, Noes 286.

Division number 21 Opposition Day — [2nd Allotted Day] — Regional Pay

Aye: 226 MPs

No: 286 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.

Question put forthwith (Standing Order No. 31(2)), That the proposed words be there added.

The House divided:

Ayes 286, Noes 232.

Division number 22 Opposition Day — [2nd Allotted Day] — Regional Pay

Aye: 286 MPs

No: 232 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly agreed to.

The Deputy Speaker declared the main Question, as amended, to be agreed to (Standing Order No. 31(2)).

Resolved,

That this House notes the importance of recruiting, retaining and motivating staff and keeping tight control of public spending; further notes that the then Chancellor of the Exchequer, the right hon. Member for Kirkcaldy and Cowdenbeath, first proposed a fair framework for local and regional flexibility for pay in his statement to the House of 9 June 2003; supports the Government in asking the widely respected independent pay review bodies to consider how public sector pay can be made more responsive to local labour markets; and believes the Government is correct in awaiting the conclusions of those deliberations before making a decision on bringing forward proposals in respect of public sector pay.