Theresa May (Photo by Carl Court/Getty Images)

Budget blogs – an economy that works for nurses?

17 Feb 2017, by Matt Dykes in Public services

Our economy should work for everyone, but if your pay has stagnated for several years in a row and fixed items of spending keep going up, it doesn’t feel like it’s working for you Theresa May, Conservative Party conference, October 2016

Yesterday our budget blog set out our case for investment in public services, stretched to breaking point after seven years of austerity at a time of rising demand.

So we should be clear too, that investment in public services means investment in the public service workforce – we can’t build world class public services with morale at rock bottom and an escalating recruitment and retention crisis.

Providing fair pay that enables public service workers to keep up with the cost of living can also form part of the government’s strategy for addressing the sense of grievance that the Prime Minister identified in her conference speech and help create the inclusive economy that she has made a central tenet of her political agenda.

It is our view that the government has the ability to do something about this for the 5m people who work in our public services by removing the one per cent cap on public sector pay growth and enabling employers, unions and independent Pay Review Bodies to arrive at appropriate pay levels for their sectors without pay policy being imposed by HM Treasury.

Six years of public sector pay restraint has had a significant impact on the living standards of 5m public sector workers, with the median public sector wage over £1k lower in real terms than in 2010.

Average Weekly Earnings – Total Pay in Public Sector excluding Financial Services 2010 – 2016

CPI RPI AWE in 2016 (projected) Real AWE in 2010 (2016 prices) Nominal annual change % annual change Real AWE in 2010 (2016 prices) Nominal annual change % annual change £500 £516 -£811 -3.0% £539 -£2,003 -7.2%

Looking ahead, public sector pay is set to decline further as the government adheres to a 1 per cent pay cap on the public sector pay bill till the end of this parliament, resulting in real terms pay cuts for nurses, midwives, civil servants, firefighters and a range of other public service occupations.

Real terms cuts in wages by public sector occupation 2015/16 to 2020/21

Occupation Pay in 2015/16 Pay in 2020/21 at CPI in 2016 prices Nominal real terms cut at CPI Pay in 2020/21 at RPI in 2016 prices Nominal real terms cut at RPI Midwife £35,255 £33,534 £1,691 £31,937 £3,288 Teacher £32,831 £31,255 £1,576 £29,767 £3,064 Nurse £28,462 £27,096 £1,366 £25,806 £2,656 Fire fighter £29,638 £28,215 £1,423 £26,827 £2,766 Jobcentre Plus supervisor £24,727 £23,540 £1,187 £22,419 £2,308 Social worker £37,858 £36,041 £1,817 £34,325 £3,533 UK Border Force officer £27,000 £25,704 £1,296 £24,480 £2,520 Ambulance driver £19,655 £18,712 £943 £17,821 £1,834

And public sector pay is set to decline further in relation to private sector pay. As private sector pay awards outpace those in the public sector, public sector employers are facing an increasing recruitment and retention crisis.

Public sector v whole economy real earnings growth 2007 – 2021

This is borne out by other analysis, for example Incomes Data Research and the OME research shows that in September 2016 public and private sector average weekly earnings had achieved parity. Furthermore, this was largely due to the impact of very low paying parts of the private sector pulling down the private sector average. Average public sector earnings are less than those in finance and business services, construction and manufacturing.

Average weekly earnings by sector September 2016

Source: IDR and OME, 2016

Pay stagnation is affecting the living standards of public sector workers, with increasing numbers failing to keep pace with cost of living and relying on other forms of income either through accumulating debt, seeking agency work or employment outside of the sector.

A significant majority of respondents to union member surveys are feeling the pinch. In the NHS, 63 per cent of UNISON members responding and 79 per cent of Unite members saying they felt worse off than they did 12 months ago.

Many of the 21,000 health service members responding to the UNISON pay survey of October 2016 stated that increased food, transport, utility and housing costs were having a serious impact on their cost of living.

Alarmingly, two thirds of staff had used financial products or made a major change to their standards of living over the last year. Of that group:

73% asked for financial support from family or friends

20% used a debt advice service

17% had pawned possessions

16% used a payday loan company

23% moved to a less expensive home or re-mortgaged their house

Just over 200 respondents said that they had used a food bank in the last year.

Public sector employers, particularly in the health and education sector, are relying on costly and inefficient use of agency labour in order to fill gaps created by staff shortages.

In their research into the use of agency workers in the public sector, the National Institute of Economic and Social Research point to a 50 per cent increase in agency spend by NHS Trusts between 2009/10 and 2014/15.

There has been considerable analysis of the reasons for the increase in agency staffing in NHS Trusts and much of it can be attributed to the increased requirement for ward staffing resulting from the Francis Review and the cuts to nurse training in 2010/11 and 2011/12 feeding through the system. However, the NIESR research attributes other factors, including the deteriorating employment offer as a result of pay restraint.

It is worth noting that the research also points to a 15 per cent increase in the use of supply teachers in maintained schools, indicating that the use of agencies to fill staff shortages in the public sector is not exclusive to the specific circumstances of the post-Francis NHS.

There is a growing consensus that the government’s public sector pay policy is unsustainable, particularly given the twin aim of restraining pay while seeking workforce engagement in transforming services and developing new delivery models.

Commenting on the increasing teacher recruitment and retention problems, the School Teachers Pay Review Body 2016 made a clear connection with the deterioration of the relative position of teacher pay:

Recruitment and retention pressures have become more acute, creating a challenging climate for schools. We have noted significant shortfalls in recruitment to ITT (initial teacher training) for the secondary sector and an increase in vacancy numbers, including in all the core subjects. Figures show a significant increase in the number of teachers resigning from the profession (including higher wastage in early years) at a time when pupil numbers are increasing, adding to the demand for teachers. Our analysis of earnings data showed that the relative position of teachers’ earnings has deteriorated further this year and they continue to trail those of other professional occupations in most regions.

The growing problem of teacher retention was highlighted by the results of the school workforce census of November 2015.

This showed that nearly one in ten teachers left the profession last year – the highest proportion for a decade – and almost a quarter of teachers now leave within three years. The figures show that after three years, teachers are leaving faster than they were before: 75 per cent of teachers who started in 2012 were still in post three years later, which is the lowest since records began in 1996

The NHS Pay Review Body 2016 flagged up the implications for recruitment and retention that may arise due to NHS staff feeling undervalued due to pay restraint at a time of increasing workloads:

NHS staff are highly motivated and committed to delivering high quality patient care; for the majority this is what attracts them to work in the health sector. However, the pressures within the system are high and increasing and appears to be having an effect. Coupled with low pay awards this all serves to make many staff feel undervalued … considering the implications of the type of pay restraint envisaged by the UK government over the next four years much will clearly depend on the overall economic picture. There are shortages and recruitment and retention problems already emerging for particular groups in the NHS.

This point was strongly reinforced by Chris Hopson, Chief Executive of NHS Providers who claimed in an interview with the Health Service Journal in November 2016 that one NHS Trust found lower paid staff quitting the NHS to work in supermarkets because pay in the health service was becoming uncompetitive. He commented that:

If we try and maintain that 1 per cent to the end of the parliament, we are seriously worried that we will not be able to maintain the staff we need or recruit new ones.

Few outside the Cabinet or Treasury believe that the public sector pay cap is either justified or sustainable. And now it is beginning to act as an obstacle not only to public service reform but also to meeting the government’s aim of creating an economy that works for all.

As part of a new deal for public services, we would like to see the Chancellor to use the budget to:

Lift the public sector pay cap and allow public service wages to be determined according to the needs of each sector through collective bargaining between employers and unions or through genuinely autonomous and independent Pay Review Bodies where appropriate.

Reform Pay Review Bodies to ensure that relevant trade unions and employer voices are included within board membership and that PRBs are able to look at a wider range of issues than affordability – focussing on recruitment, retention, market comparisons, staff morale and the impact on services.

Place more value on all employees delivering public services by adopting the widely supported voluntary Living Wage, which is currently £9.40 per hour in London and £8.25 in the rest of the UK.

Increase the National Minimum Wage as quickly and strongly as can be sustained. The TUC’s medium-term goal is that all UK wage rates should reach at least £10 per hour.