Public Sector Pay

Millions of public sector workers are demanding a pay rise, but the Chancellor is worried about the impact on public spending. Is there a free market solution to reform the public sector and scrap national pay bargaining?


Public sector wages. Time to lift the pay cap? Or is it time to reform the public sector?

Hi, I’m Leon Hawthorne. The government is facing pressure to increase the pay of millions of public sector workers.

So, how much is a nurse worth, or a teacher, policeman or civil servant? Human value and salary are totally different things, but if politicians decide your pay, these lines can get blurred.

Public sector workers have had their wages frozen or capped since David Cameron became Prime Minister in 2010… part of austerity measures to control public spending.

The government spends £150 billion a year on wages for 4.5 million public sector workers. While pensions add a further £44 billion a year.

But those workers have suffered a real-terms reduction in their incomes due to the pay cap and inflation.

The Royal College of Nursing says a nurse earning £21,000 a year in 2010 would have progressed up the scale and be earning £28,746 today.

But if pay had kept pace with inflation, she would be on £33,739.
A real terms annual pay cut of nearly £5,000 (£4,993).

So, it’s perfectly understandable why public sector workers want a pay rise.

But if the government agreed, say, a 2% across the board increase, this would add £3 billion to the wage bill.

The only way to square the circle, that is increase pay and keep control of spending is to cut the number of public sector jobs.

It’s a bitter pill to swallow, especially when people, struggling to pay their bills see massive rises in executive pay. It appears to be one rule for some and another rule for others.

The truth is one or two government ministers should not be making decisions about the salaries of millions of workers.

You and I and millions of consumers should be making those decisions. Already, we decide the fortunes of Coca Cola and Pepsi when we choose which soft drink to buy, or the future salaries of Brad Pitt and Tom Cruise when we decide to see one of their movies, or not.

In a system, where consumers have a choice of providers and there is no monopoly, decisions about pay are fully democratic.

What I’m saying is the public sector should be reduced in scope and scale to mainly the armed forces, police and a small number of key civil servants. Everybody else should work in the private or charitable sector. That includes every nurse, doctor and teacher.

Yes, public services should be financed out of taxation, but there’s no good reason for government to directly deliver most of these services.

One example – schools.

All schools should be removed from local government control, becoming academies or free schools. Thereby, all teachers would be employed by individual schools. No national pay bargaining. Individual schools will set their own salaries.

The government would give parents vouchers, paid for from taxation, which parents pay to these schools.

In one move, you eradicate a virtual public sector monopoly, removing pay decisions from ministers and creating a competitive market that will provide a better service to its customers.

The one example always used to counter this suggestion is the mess that is the privatised rail network. I agree rail privatisation was botched. The mistake was in selling off local franchises as monopolies. The Treasury did this to maximise the money it would get from franchise bidders.

But this just replaced a public sector monopoly with a private sector monopoly. Instead, government should deliver public services via competitive markets, mainly of charitable providers, and give the public vouchers to pay for these service.

This would create more choice, better services and workers’ salaries would no longer be a political hot potato.

Thanks for watching.

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