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How local authorities can cope with the cost of the national living wage

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The chancellor’s decision to increase the minimum hourly rate for workers over 25 from £6.50 up to £7.20 initially, and then to £9 per hour by 2020, may push local government employers into doing something they have already done or were planning to do anyway.

It may not appear that statutory backing for the ‘living wage’ matters much to the sector, but this could not be further from the truth. This is a major change to reward structures in local government and places more pressure on costs in a cash-strapped era, which will jeopardise the ability to deliver services.

Funding for the social care provider sector for example, which is ultimately supported by local government commissions, could be severely reduced. While this could affect care home, dementia and disability support services, the effects are likely to be felt most keenly by the elderly who need care at home. At present this work receives the lowest pay, and therefore is the most likely to fall off the funding map if significant salary increases for carers are required.

While this should be cause for concern, the changes present opportunities as well as threats. Careful management is required to take advantage of the former, while limiting the impact of the latter.

Below are three areas the local government employer needs to think about: 

Employer brand

In the post-living wage world, money can no longer be a differentiator, but there are many advantages local government can offer when competing for labour. They must think about the many things that make their authority a great place to work, articulate them in a compelling way and then sell their employer brand. Local government offers good training and development opportunities, the chance to progress, flexible working hours, pensions and competitive holidays. The sector makes a critical contribution to the quality of life in their local communities. Do they shout loudly enough about all this? 


Local government needs to improve productivity in response to the additional investment in front-line people. This doesn’t mean driving people into the ground. Rather, it means investing in front-line leadership to help create the conditions that allow people to give their best, and equipping people with the technology they need to use their time efficiently. There will be opportunities to implement more efficient working practices, develop more challenging and interesting roles and improve cross-functional collaboration. 

Reward structure

A significant increase in pay at the lower levels of the organisation has implications at higher levels too, and this should not be underestimated. Of immediate concern is whether there remains sufficient incentive for employees to take on more responsibility, such as front-line supervisory roles, but structural issues apply all the way through the organisation.

In real terms, pay for senior professional and management roles in local government has been in decline since 2009, to the point where a number of employers pay more overall to those at the top of the National Joint Council scales than to those at lower management grades. The implementation of the living wage will further restrict the resources available for this senior population.

It is critical that local government leaders are not so focused on changes at the bottom that they fail to tackle a collapse of engagement and retention at the top.  

Mark Thompson, head of reward consulting UK & Ireland, Hay Group



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Readers' comments (1)

  • Thanks Mark for an interesting article. I agree that this provides an opportunity for us to consider job design and reward beyond pay. You are absolutely right about not losing sight of the issues of engagement and retention at the top. We need good leaders and we need to retain expertise. We are already noticing a falling off of applicants for senior roles and we are losing good people to better paid jobs in the private sector.

    Sorting reward has never been more important to us.
    Sue Evans Vice President PPMA

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