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Why the 2% pay offer puts pressured councils in a no-win position

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Commentary on the impact of the 2% pay offer for most council staff

When the 2% pay offer was made last month there were dire warnings from Conservative leaders that councils, approaching the prickly phase of the increasingly uncomfortable annual budget-setting cycle, would be forced to introduce further cuts to threadbare services and potentially – and with bleak, uncomfortable irony – reduce the workforce that was set to benefit (very slightly) after years of toiling under the 1% cap.

Councils had been warned they needed to plan for an increase in their pay bill of up to 6% over the next few years due to reforms to the local government pay spine, which are due to come into effect in 2019.

But LGC’s research, published today, shows that many councils appear to have been caught by surprise by the 1% pay cap being broken in 2018-19.

This is perhaps understandable. Negotiations among members of National Employers went to the wire last month, with both the pro-cap (in current financial circumstances) Conservatives and Labour ‘two percenters’ said to be unwilling to compromise.

LGC understands that following frantic negotiations throughout decision day, the size of the offer was genuinely in doubt right up until National Employers chair Sian Timoney (Lab) made her casting vote.

Chartered Institute of Public Finance & Accountancy chief executive Rob Whiteman told LGC he was not surprised some councils had still not yet factored in the 2% rise next year as communication between the national body and individual councils was “not always timely”, with councils sometimes “feeling out of the loop”.

Unions are set to consult members on the 2% offer over the coming weeks and there is a quiet confidence among those close to negotiations that it will be accepted.

The 5% claim made by unions in June was always a case of aiming high in the hope the difference would be split to break the cap. LGC understands unions were surprised that the 2% offer was forced through.

Many of those councils which said the pay offer had not yet been factored into budgets have warned implementation will significantly add to financial pressures.

If any further alarm bells needed to ring about local government finances then Peterborough City Council set them off. It reported the second smallest additional cost of £400,000 in 2018-19 but warned the pay increase “could not” be rolled out unless it was funded by the government. The council said this was because the extra cost was in addition to planned savings required following a reduction in revenue support grant from £55m in 2013-14 to £15m in the next financial year.

However, for councils signed up to the national pay process, non-compliance with an offer agreed by the National Joint Council is not an option. Staff contracts will stipulate that pay is set by the body, leaving any non-compliant council at the mercy of an inevitable, powerful and, in all probability, costly legal challenge.

It is commendable that Labour councillors pushed to partly offset some of the impact of inflation, currently hovering around 3%, particularly as Labour councils and their communities are among the hardest hit by economic uncertainty and government austerity.

Labour leaders may have written to chancellor Philip Hammond calling on the government to fund the pay rise, but many surely shared the view of Sevenoaks DC’s Conservative leader Peter Fleming that this would be flatly rejected as the government refused to foot the bill for a decision independently taken by local government.

The issue of pay currently places local government in a no-win situation.

As Mr Whiteman pointed out, the pledge of funding for NHS pay in the Budget has raised expectations across the public sector and councils face a challenge to recruit and retain staff.

If do-able, an above cap pay rise – albeit one below inflation – is not only the right thing to do for staff but, it could be argued, the bare minimum required in efforts to maintain a motivated workforce with the necessary skills to handle increasingly demanding times.

But with no immediate prospect of a financial commitment from the government – and the issue of a 2% pay claim from the Association of Local Authority chief Executives & Senior Managers still to be considered – some councils might be forced to further reduce capacity in some service areas to cover pay increases, with the inevitable knock-on effect in the communities they serve.

Jon Bunn, senior reporter

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