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The unintended consequences of the pay cap thaw

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Commentary on the pay offer for council staff

One London chief executive recently told LGC staff recruitment and retention was their council’s biggest problem.

Brexit threatened the supply of workers for their lower paid roles; perceived overwork and competition from the private sector was making it harder to get appropriate people positions at all levels, including director roles.

This chief executive’s problem is not unique. Staff morale is surely low nationwide as a result of the regular restructurings and cuts to which most authorities have borne witness as a result of austerity. And the financial appeal of most careers in local government has diminished as a result of the below-inflation 1% pay cap since 2013. This followed on from a pay freeze.

In relative terms the private sector has become more lucrative than local government careers. Why do a dirty and onerous job in social care when shelf-stacking in Tesco pays more? Why be a council chief when consultancy is less stressful and more financially rewarding?

As a result of all this it was not entirely unexpected that council workers were yesterday offered a more generous deal than has been the norm in recent years. Most council staff will receive a 2% pay hike in each of the next two years under the terms of an offer made by the National Employers who negotiate on behalf of most authorities.

Before we get too carried away by the generosity, let us remember that the rate of consumer price index inflation is currently 3%. Should the inflation rate remain the same council workers will still see a decline in their real-terms wealth.

Nevertheless, the offer was not immediately dismissed by the unions.

However, the unions immediately queried where the money was going to come from. Unison’s head of local government Heather Wakefield said: “The government must now come up with the cash to fund local government properly so councils have the money to give their staff a wage increase that doesn’t put more services or jobs at risk.”

A similar theme emerged today in a letter from more than 90 Labour council leaders to the chancellor. They said it was “vital” the government used the local government finance settlement, expected next week, to “ensure we have the resources to give our staff a fair rise”.

The settlement refers to year three of councils’ four-year settlement, so we already know it will not herald a bounteous future of overflowing cups for the sector. However, the possibility remains (theoretically at least) of some kind of boost for at least some councils, a la last year’s transition grant, or some change to the new homes bonus. With the economy battered by impending Brexit, productivity stalling and the chancellor making little progress on closing the deficit, it is hard to see any dramatic improvement in councils’ lot.

So how can the pay rise be funded? As LGC has already discussed this week, the easy cuts have long since been made. A majority of councils face only unpalatable options for further savings. Unless Sajid Javid pulls an unexpected rabbit from his hat next week, the likelihood is that higher wages will be funded through more service cuts and more jobs being lost.

So while those council staff who retain their jobs will see their standard of living fall a little less than has been the norm in recent years, some of their colleagues may be less fortunate. They could see changing shift patterns which in effect amount to a pay cut – the cause of (the now resolved) industrial strife among Birmingham City Council’s refuse workers or ongoing dispute among Derby City Council’s education support staff. Or the scrapping of free parking for staff, as has been considered by Hull City Council.

Several significant figures in council finance today told LGC that the relaxation of the pay freeze was not unexpected. Councils had factored it in to their financial plans for the coming year.

However, as Duncan Whitfield, strategic director of finance and governance at Southwark LBC, put it: “Following on from the chancellor’s Budget statement, where he made no type of commitment to lifting the public sector pay cap, it has become increasingly clear that these financial pressures will be borne by local authorities and will need to be balanced against the extent of services that can be offered.”

There will be unintended consequences of the pay cap relaxation: more cuts, which put further pressure on council staff. However, these consequences are not unexpected. Indeed, nothing is as predictable as doom for council services and both their users and staff.

Nick Golding, editor, LGC

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