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UK Government regional pay plans could cost the Welsh economy £660 million

There is no evidence that the pay of teachers, nurses and dinner ladies is preventing Welsh firms from hiring staff, and UK Government plans to introduce regional pay rates for public servants could cost the Welsh economy £660 million a year, according to a report published by the TUC today.

Concerned that the UK government has yet to undertake any serious research into the economic impact of its proposals for the introduction of regional pay, the TUC recently commissioned the New Economics Foundation (nef) to analyse ministers' proposals. The nef researchers conducted an in-depth analysis of the arguments put forward by the government and found little evidence to support its position.

Nef also looked into the economic impact and the number of jobs that might be created - or lost - if local pay was introduced for schools, hospitals and other public sector employers.

To examine the likely economic impact of the government's local pay proposals, nef set out to explore a number of scenarios. One approach assumed that that the government is wrong and that there is no 'crowding out' of the private sector by public sector pay.

Nef concluded that with this 'worst' case scenario where the pay of millions of public servants who live outside of London and the South East of England, is kept down to allow the private sector to catch up, as many as 9300 net jobs could be lost across Wales, and the cost to the Welsh economy would be a huge £660 million a year.

Even on the 'best' case scenario for ministers, where nef modelling assumed that the government is right and the pay of public servants is preventing private sector firms from recruiting because they are unable to match public sector salaries, the introduction of local pay rates for public servants would only see the creation of a mere 229 jobs in Wales, the report found.

Yet this approach would still come at a price and would mean local economies taking a hit to the tune of £156 million a year as civil servants, refuse collectors and other local public sector workers find their spending power further diminished, says the TUC.

Commenting on the report, Wales TUC General Secretary Martin Mansfield said: 'If the UK Governments plans to introduce regional pay are achieved, not only will the public sector workers, whose pay will be held down, be affected. This report shows how devastating the impact would be on local economies across Wales. Neither public nor private sector workers would benefit from these proposals.

'Despite the concerns being voiced by Assembly Members from all parties, the Westminster coalition government has so far refused to rule out this move. Regional pay would hit public sector workers and their families - who are already feeling the financial pinch as they suffer the effects of a lengthy pay freeze.

'This report shows how discredited the UK Governments regional pay proposals are, and how proper research is vital when introducing measures which affect people and communities across Wales and the rest of the UK. I urge the UK Government to look again at these proposals before making a decision which could have such a devastating impact on millions of people's lives.

Helen Kersley, Head of Valuing What Matters at nef said: 'The research finds no economic case for regional pay variations. Our research finds the government's proposals are based on flawed assumptions that are not borne out in reality.

'Cutting the wages of public sector workers is a high stakes gamble from which there will be no winners. Even in the very best case where the private sector creates more jobs, the economy would be substantially worse off overall.

'Proponents of this policy must look again at the potential implications to avoid creating further harm in a fragile economic period.'

Since the Chancellor announced in last year's Autumn Statement that the government was to explore whether a system of local pay for public sector workers might help businesses in the private sector take on more staff, a growing number of coalition MPs in 'low-pay' areas of the UK - such as Wales and Northern England - have begun to voice concerns about what such a move might mean for their local economies and communities.

Briefing document (800 words) issued 19 Jul 2012