James Sheridan is a human resources manager in the public sector where he has worked as a generalist advising managers and staff on a range of HR issues, as well as a specialist in compensation and reward. He has also worked for the National Extension College where he tutored working people to write assignments for the college’s Workforce Development and Micro-learning Organisation. He has a Masters Degree in Human Resources Management and is a Fellow of the Chartered Institute of Personnel & Development.

Public Sector Pay: Settlements in 2008 and the future outlook.

Introduction
With many parts of the public sector still very much occupied with tackling equal pay and creating new grading structures, human resources departments have been very busy over the past few years. Meanwhile, the Treasury continues to exert downward pressure on wage awards which has hindered the implementation of new pay arrangements¹, which tend to exert upward pressure as they aim to level out old inequities. It is in the area of  equal pay that the biggest industrial relations challenge remains and it is Local Government that has become the focus for other areas of the sector to learn from, both for legal precedent and structuring pay as a whole.

2008 was a challenging period for public sector pay negotiators. The challenge will continue into 2009 and beyond, compounded by the economic uncertainty facing British enterprises, both private and public, due to the ongoing recession.  Original plans to keep pay increases in line with the Treasury’s Consumer Price Index (CPI) inflation target (of 2% set in 2007) may alter in the coming year. In 2007 Gordon Brown called for longer term deals which would progress from 2008 to 2011².  Readiness to accept these settlements depends on the level of increases offered and the increased value of job security during the economic crisis.

A key indicator to how settlements will be resolved moving forward is the Government’s interventionist approach. Calling into question the effectiveness of pay review bodies, and,   whether such interventions are suitable for the whole public sector.  A tight focus on inflation has lead to settlements containing clauses to review pay if inflation remains high. Teachers in England and Wales currently have a three year deal with such a clause and 2009 may see this used elsewhere in the public sector.

The Treasury is also keen to promote a total reward approach to remunerating staff, recognising that pay is not the only motivator, but work-life balance, a final salary pension scheme, and training and development can contribute to successful recruitment, retention and engagement. The challenge however remains for the public sector to overcome its sometimes unexciting image as an employer, though job satisfaction and security is generally believed to be good. These factors may contribute to increased interest in a public sector career from staff working in the private sector where cuts in headcount have presented the public sector with a talent pool increased in size.

All sections of this research report are intended to provide factual background to public sector pay settlements in 2008. While also providing forecasts for 2009 based on those settlements, Government intentions and employee sentiment.

Education
The Higher Education sector has seen some dramatic changes to its pay determination in the past few years. Following the Bett report into pay and conditions, all universities and colleges embarked on a major overhaul of grading and additional payments including the introduction of analytical job evaluation, which has assisted in tackling equal pay issues. Often working in partnership with trade unions, higher education institutions became much more proficient in the management of their pay determination, and the trade unions have likewise increased their knowledge in the area and have honed the skills in negotiation. This has led to some protracted discussions on a collective basis and culminated in broad agreement in terms of a three year deal which was designed to last from 2006 to 2009. This deal gave all staff a 13.1% increase over three years, but this had to be backdated to 2006 as an agreement was concluded as recently as November 2007.

Owing to the expiry of the current agreement, negotiations will begin again in the spring of 2009, and they will be conducted by the Joint Negotiating Committee for Higher Education Staffs (JNCHES). This joint management-union group will operate under a new, modern constitution agreed by all the unions except the Universities and Colleges Union (UCU). The UCU is concerned about the terms of academic and academic-related staff in pre1992 institutions (i.e. ‘old’ universities) and the number of seats that it has on the new JNCHES. Therefore its officials will act only as observers, and thus any agreement reached may not have its blessing, a significant fact considering that that it has some 65,000 members in HE.

As for Further Education Colleges in England, in the autumn of 2008 staff accepted an increase of 3.25% (or £550, whichever was greater) on all salary points backdated to 1 September 2008. However, the pay deal for Sixth Form College staff was not as good, with an increase of 2.45% being offered, although the most lowly paid workers had their minimum hourly rate increased to £6.21 and the basic minimum annual leave entitlement was increased by two days to 22 days.

UNISON, which represents 25,000 non-teaching staff across the country, recognised that the offer had to be also placed within the context of the government’s public sector pay policy and the below inflation increases in funding for sixth form colleges in 2008/9 which led to redundancies in some colleges.

Secondary school teachers have become the test bed for ‘inflation linked re-opener clauses’³. In 2007 the School Teacher’s Review Body (STRB) was stopped from reviewing the 2006 pay award even though an inflation-triggered review mechanism had been included. Scottish teachers faired better and received extra pay rises in compensation for inflation exceeding limits laid down in their agreement. In England and Wales the 2008 award lasts until 2010 and holds a mechanism to review any pay rises if inflation is judged to be too high. Such an approach will be considered for other sections of the public sector.

The award has been accepted by Government but the Union reaction has been less favourable. When announced the rate of inflation was 4% by Retail Price Index (RPI) and the proposed pay rise was 2.45% The National Union of Teachers (NUT) believed teachers would suffer a decreased standard of living, magnifying recruitment and retention problems as a result. Industrial action was proposed to members who were balloted in February 2008. Members voted three to one to take industrial action and the first teachers strike in 21 years took place on 24th April 2008. 8, 000 schools were closed or partially closed⁴. The NASUWT were vehemently opposed but fell short of proposing industrial action, their key message to Government was that “teachers should not be taken for granted”⁵

STRB had addressed recruitment and retention by focusing on experienced teachers in London.  Recommendations were that the salary bands for inner and outer London would be raised, providing a 3.44% and 3.81% increase respectively. 

November 2008 saw the Retail Price Index (RPI) drop to 3.0%. Leaving the deals for London in a favourable position yet teachers in the rest of England and Wales still have a rise below the inflation rate. However, it is now only 0.55% below compared to 2.55% when the deal was first announced.

Local Government
New Local Government Services National Joint Council (NJC) deals were unveiled in April 2008. English and Welsh councils – that follow the nationally negotiated deals - were offered a 2.45%. headline pay rise. Unions rejected the deal and lack of agreement culminated in a two day strike in July 2008.  After deciding the time and cost ACAS arbitration would take, Unions decided to accept an improved offer from employers. The final settlement delivered a 3.29% to 3.32% rise for spinal column points 4 to 6 (outer London) and 2 to 4 (inner London). Remaining points received 2.45% ⁶

Prior to the 2.45% offer unions representing local government in England and Wales submitted a pay claim to the Local Government Employers (LGE) for a 6% deal, for one year based on spinal column points.  The aim was to ensure the minimum hourly rate would rise from £6 to £6.75. Negotiations on pay were separated from the imminent review of terms and conditions.

Equal pay instigated industrial action in many organisations.  A deadline of 31st March 2007 was set in 2004 for completion of ‘equality proofed’⁷ local pay and grading reviews in local authorities.  In January 2008 the LGE revealed that only 47 per cent had completed a pay and grading review. 15% of respondents had planned completion dates of 2008 to 2009.      

In September 2008 34 councils with the largest equal pay liabilities were provided with means – known as capitalisation - to cover them. Capitalisation permits the selected councils to borrow more money or sell assets. John Healey (Local Government Minister) stressed “I’m determined to see councils settle their equal pay obligations…I want to see them go further and faster, working closely with the trades unions, to see fair pay for all staff” ⁸. Pay structures of the future will be scrutinised to prevent costly tribunals and back-pay costs.

In the coming year the NJC are ready to push even harder for local government pay increases.  In November 2008 they wrote to the Chief Executives of all councils asking them to budget for at least a cost of living increase, with additional increases for the lowest paid.⁹

2009 will see total reward and performance related pay on the agenda of local authorities. Both approaches are designed to assist in recruitment and retention. Total reward allows individuals to see the value of their overall package, while also allowing individuals to flex certain benefits, benefits that were previously bargained for collectively. As for performance related pay, the level of government funding, pay guidelines and union pressures constrain local authorities from introducing it. Local authorities are often hide-bound by lack of funding and pay structures that do not link pay with performance metrics. In particular, there is no overarching policy as to what constitutes ‘performance’ for local government workers. The challenge entails convincing unions that no additional equal pay claims will be caused and taking away their ability to bargain for certain benefits across the board is in employees’ interests.

Things may change if the Local Government Consultation paper Delivering a Rewarding Future: An Approach to Pay and Benefits in Local Government in the 21st Century is implemented. The paper recognises that the sector needs to look further forward over a ten or fifteen-year period to provide for the changing role of councils, and to develop a strategy for negotiation with the unions. There is also a commitment from both sides of the NJC to a strategic and comprehensive review of the way that local government rewards its workforce. Furthermore a new survey has been launched by Local Government Analysis and Research (LGAR) which will gather earnings data using a standard occupational classification for local government aligned with the classification codes used by the Office for National Statistics, and thereby enable the benchmarking of salaries on a regional, type and sector basis, and thus improve on many of the ad-hoc processes that currently prevail.¹¹

National Health Service (NHS)
As Europe’s largest employer pay settlements affect a wide variety of roles and are a significant share of budget. One typical example being the South West Yorkshire Mental Health NHS Foundation Trust, where pay accounts for 75% of their total annual expenditure ¹²

2008 saw a three year deal agreed between employers, unions and the Department of Health. It delivered 2.75% from April 2008 with decreases in 2009 and 2010 of 2.4% and 2.25% respectively.  The NHS Review Body had originally advocated a one year deal. Nevertheless, the review body will review any factors that directly affect the 2009 and 2010 arrangements. If they “receive and identify new evidence of a significant and material change in recruitment and retention and wider economic and labour market conditions, they may request a remit from the Secretary of State to review [the] increases”.¹³

RPI inflation was 5% in October 2008 and fell to 3% in November 08. In October 2008 NHS trade unions had called for negotiations to be reopened.  As the wider economic and labour market conditions have altered significantly with the UK recession the 2009 and 2010 deals look certainties for new analysis.

Central Government Departments
Like local authorities central government is facing equal pay claims in 2009. Inequality is believed to exist between departments and within departments where differing pay structures existed for separate subdivisions.

Consistency in terms and conditions across departments formed the basis for many senior level meetings in 2008. The Public and Commercial Services (PCS) union launched a pay and conditions claim against the proposals made by The Treasury to reform pay structures across central government. Union discontent was magnified during the year when settlements implemented in the civil service, Department for Work and Pensions (DWP) and the Home Office had not received their consent. All of which bodes badly for rocky negotiations in 2009.

While the Cabinet Office sets the parameters within which pay settlements are made, the power to set increases or make new reward initiatives is delegated to departments. A wide variety of approaches is being taken between departments, with some opting to shorten pay scales at the expense of increases to maximum rates, while others have chosen to increase to increase all basic rates in order to ensure that staff who have reached the maximum of their grade also get a pay increase. (IDS Pay Report 1013 November 2008). As for commonalities among departments, some have started to tackle pay among the lowest and highest paid by giving these staff greater increases than those in the middle in order to improve recruitment and retention.

In line with modern thinking in compensation, total reward has been deployed with the Cabinet Office and HM Treasury as advocates, and a joint review revealed reward options were not being utilised to maximum effect. The Cabinet Office has adopted the Hay Group’s Total Reward Toolkit for all departments to assess how better to engage and motivate staff, and central government is promoting it across the public sector by using central departments as best practice examples.

The National Assembly for Wales is in the second year of a three-year agreement which provided for an increase of between 2 and 5.3% depending on the grade. The pay scale for lowest band was shortened from five to four steps, thereby increasing the minimum rate by 10.7%. In most of the lowest grades the lowest pay points were increased by more than the highest pay points. As for the Scottish Government, the average earnings growth is expected to be 4.5% in the first of the three year deal, while the settlement for Scottish Prison Service staff is much lower at 2.35%.

The Home Office is in the second year of a 3 year deal, which has seen average earnings grow by 3.39%. The size of the increase has been dependant on one’s grade, with most people getting one ‘milestone’, a type of increment, which was 2.56% for most grades. However staff in the lowest and highest grades were treated more favourably, receiving 3 milestones, which amounted to 3.6%.

In the case of the Department for Environment, Food and Rural Affairs (Defra), pay ranges have remained the same from 2006 which meant the deal in 2008 (backdated to July 2007) focused on bonuses and career progression. Average earnings were increased by 2.9% and staff near or on their maximum of the range maximum received an unconsolidated 2.64% rise. 5,624 staff were covered including those in agencies covered by core Defra arrangements. Despite union resistance to the arrangement management installed the deal.¹⁴

Non-Departmental Public Bodies (NDPBs)
Staff received a 2% raise on basic pay with scale maximums raised to 3%, delivering a headline pay increase of 2.99%. The annual deal commenced on April 2007.

Due to the nature of their remit UKAEA has a base of professional and technical specialists represented by the Prospect union. In December 2008, after concerted lobbying, news was welcomed that the Treasury had invited Prospect to discuss the civil service pay structure. Particular attention would be given to scientists and engineers.

Civil Aviation Authority (CAA)
All employees covered by collective bargaining arrangements were awarded a pay increase of 3.8% for April 07 to April 08.  Any market related supplements were increased by the same percentage rate.

The original offer of 3.6% was rejected, after a ballot of 720 workers revealed only 105 were in agreement. Prospect believed it was unacceptable that 80% of workers were effectively taking a pay cut.¹⁶

To be seen as a more attractive employer CAA unveiled a new voluntary benefits scheme in October 2008. Providing employees with the opportunity to enjoy discounts with 1, 500 retailers. Although not part of an official total reward package, the aims to improve recruitment and reduce turnover are the same (please see the central and local government sections). Its effectiveness will be measured in 2009.

Highways Agency
In January 2008 a new pay award, backdated to August 2007 was implemented, with an ‘Increase for Staff in Post’ of 3.49% (13). Staff in bands 1-8 received differing basic awards underpinned by alternative rises depending on a satisfactory or better performance rating. All pay bands remained static except for 5 to 6, increased by 3.5% and 7 increased by 1%.

Recession and the resulting increase in public borrowing will impact on the funding NDPBs receive moving forward. The knock on effect for future settlements has yet to be seen. Will economies of scale move NDPBs into a position where job losses are likely? The potential for mergers between bodies with related remits is also a real possibility.

The Third Sector (or not-for-profit sector)
The median settlement level for the third sector over the last year (Oct 07 – Oct 08) is 3.2%. A figure based on 53 pay settlements encompassing 54, 206 employees ¹⁷.  Some organisations in this sector – including NSPCC - link their settlements to NJC local government award (see Local Government Section).

Effects of the UK’s economic downturn are not yet fully known. Already under pressure to recruit and retain staff, a decrease in private and corporate donations point to very difficult times ahead indeed.

A 2008 report by the Social Care Employer’s Consortium highlighted recruitment problems because of low salaries and benefits, funding shortfalls and competition for staff.  John Knight (assistant director of Leonard Cheshire Disability) believes the current recession will adversely affect the third sector, with a focus on money and credit, plus the UK Government’s Pre-Budget Report (November 2008) setting new levels for borrowing, “it is inevitable that this will have an impact on public expenditure programmes and on third sector organisations that rely on government grants and income” ¹⁸

Uniformed Services

Police Service

The accepted Sheehy formula for calculating rises – linking rises to the median award for private sector non-manual employees – was dispensed with in 2006. A struggle to find an acceptable replacement has permeated the proceeding pay settlements.

The police service in the UK was offered a 2.5% rise in their basic pay level. An offer had preceded this based on an interim formula – designed by Sir Clive Booth – linking raises to public sector employees. However, the first proposal was referred to the Police Arbitration Tribunal (PAT), who devised an expanded index – incorporating private and public sector employees - which produced the 2.5% offer. It should have been a year long deal, running from September 07 to September 08.

The Home Office accepted 2.5% but deferred the award by three months. So the start date became December 2007 and the effective rise 1.9% over 9 months.  The Police Federation are committed to reclaiming the three lost months, being granted permission to move proceedings into the High Court. 20, 000 officers marched on Westminster in January 2008 to openly display dissatisfaction.

With the 2007 pay deal unresolved the Government are recommending that PAT’s expanded index be used to devise a three year deal. However, if the index produces a rate above any Government inflation target it may be ignored.

A return to smoother negotiations does not appear likely in the near future.  Demonstrated in February 2008 when the General Secretary of the Police Negotiating Board (PNB), stated staff representatives “will not discuss 2008 until 2007 is finished” ¹⁹.  A sentiment echoed in May 2008 when a ballot “found that 86% of rank and file officers in England and Wales wanted full industrial rights”²⁰

Fire Service
In 2008 the NJC for the Local Authority Fire and Rescue Services agreed to a pay increase of 2.4% backdated to July 2007. The formula used was agreed in the Fire Service Pay and Conditions from 2003. The previous settlement was set using a formula that derived the rate form adjustments “ in line with the movement in the average pay for the Associate Professional and Technical Classification (APT) (full time male and female) in the New Earnings Survey for April the previous year projected to the operative date of the pay increase”  ²¹

In June 2008, Matt Wrack, General Secretary for the Fire Brigades Union (FBU) announced that the APT formula had produced an increase of 2.45%, and that NJC for the Local Authority Fire and Rescue Services had accepted it. The increase would commence in July 2008.  Although this settlement was relatively straightforward, frustration rose amongst front line staff as proposals were made to cut London watch manager’s pay by up to £2,000. ²²

Looking ahead, front line fire services staff will continue to be concerned with their safety being compromised. Restructuring and recruitment problems are cited as a major cause.²³;

---

1: Davidge, E in e-reward, The Reward Quarter Winter 2008 p8
2: Incomes Data Services (IDS), Pay in the Public Services 2008, P.(i)
3: Incomes Data Services (IDS), Pay in the Public Services 2008, P.(i)
4: O’Doherty, J, Financial Times, 25/04/08
5: Healey, J in peoplemanagement.co.uk, 30/09/08
6:  Anon. in, sitra.org, 22/12/08
7: Incomes Data Services (IDS), Pay in the public services 2008, p.122
8: Healey, J in, peoplemanagement.co.uk, 30/09/08
9: Anon. in Unison.org.uk, 14/11/08
10: Davidge, E,  in e-reward, The Reward Quarter Winter 2008 p9
11: Anon. in South West Yorkshire Mental Health NHS Trust Annual Report 07/08, p. 11
13: Incomes Data Services (IDS), Pay report 1010, Oct 2008, p. 18
14: Incomes Data Services (IDS), Pay in the public services 2008, P.79
15: Pliatsky, Leo, Public Bodies: A Guide for Departments, 2006
16: Higgins, J. in, Personnel Today, 16/01/07
17: Incomes Data Services (IDS), Pay report 1003, 2007, p.25
18: Incomes Data Services (IDS), Pay report 1010, Oct 2008, p.15
19: Knight, J, The Third-sector, 11/12/08, p.13
20: Incomes Data Services (IDS), Pay in the public services 2008, p.130
21: Edwards, Richard, Daily Telegraph.co.uk, 20/05/08
22: Incomes Data Services (IDS), Pay in the public services 2008, p.182
23: Wrack, M, fbu.org.uk, June 2008