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A·public 

William Brown and Bob Rowthorn 

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FABIAN TRACT 542 

..................................................... 


Apublic servicespay policy 


Introduction 1 
1 Recent history 2 
2 The current machinery 8 
3 A coherent pay policy 14 


William Brown is Professor of Industrial Relations at 
Cambridge University and author of a number of studies of 
incomes policies. 

(\, 

Bob Rowthorn is Reader in Economics at Cambridge 
University. He has written widely on macroeconomics, 
inflation and labour. 

{\; ~~ 



This pamphlet, like 
all publications of the 
Fabian Society, 
represents not the 
collective views of the 
Society but only the 
views of the authors. 
The responsibility of 
the Society is limited 
to approving its 
publications as 
worthy of 
consideration within 
the Labour movement. 

Design: Tony Garrett 

November 1990 

ISBN 0 7163 0542 9 > 
ISSN 0307 7 523 

Printed by The College 
Hill Press Limited (TU), 
London and Worthing 

Published by the Fabian 
Society, 11 Dartmouth 
St, London SW1H 9BN 


Introduction 


Over 5 million people are employed in public 
services in Britain-one employee in five. Their 
paybill amounts to almost a third of all public 
expenditure. 

D 
D
espite this, no British government has considered public services 
pay as deserving any sort of long-term strategy. Policy has been 
made in a piecemeal, inconsistent way, relying heavily upon established 
practice and deviating from it usually only in response to 
industrial action. A strategy of neglect was perhaps excuseable until the end 
ofthe 1960s. In the early post-War period the role ofpublic services was largely 
unchallenged. Collective bargaining over their pay was highly centralised, 
relied heavily upon convention, and was virtually strike free. But from the 
early 1970s there has been increasing pressure to improve labour utilisation 
in the public services and, partly in response, there has been an increased 
tendency for public s·ervice employees to use strike action in pay grievances. 
The political cost of public service strikes was impressed upon the Labour 
Party in its 'Winter of Discontent' of·early 1979. But the problem is not 
partisan. In the year to July 1989, under the Conservatives, almost half of 
working days lost in Britain were in the public services. 

The tendency of governments to react to pay discontent in the public 
services, rather than to pre-empt it, has frequently been damaging to them 
electorally. The neglect of many public services in the 1980s is likely to make 
the electoral damage particularly great in the early 1990s. But there are also 
more positive grounds for a consistent public sector pay strategy. The high 
labour intensity of the public services ensures that pay must be of crucial 
importance. The management of pay cannot be divorced from the management 
ofthose who are paid. A major victim ofthe casual management ofpublic 
service pay has been the quality ofthe services offered. 

This study analyses whathas happened to public service payin recentyears 
and the extent to which the pay structure has been distorted from a desirable 
long-term position. We look at the peculiar circumstances of labour in the 
public services and how these have altered during the past decade. In the light 
ofrecent developments, we analyse the technical requirements ofa pay fixing 
machinery and to the institutional options that might embody them. We 
conclude with the problems of transition to a new policy. 

1 

( 


1 
1 
Recent history 

T
T
he employees with whom we are concerned are all those in the public 
sector except for employees in the nationalised industries and other 
public corporations. The total headcount, including both full-and 
part-time, was 5.38 million in 1979 and, after fluctuating without a 
clear trend, was 5.24 million in 1989. No less than 59 per cent of these were 
women, almost half ofthem in part-time employment. Because ofthe growth 
in part-time employment, however, in terms of 'full-time equivalent' employees 
the overall employment figures translated into a gradual decline from 
4.56 million in 1979 to 4.34 million in 1989. A breakdown by major categories 
is given in Table 1. 

1000s offull-time equivalent employees 
Armed Forces 308 
Other Central Government 756 
National Health Service 1008 
Local Authority Education 1003 
Local Authority Social Services 282 
Local Authority Construction 118 
Other Local Authority 675 
Police (inc civilians) 191 
Total 4341 

(Source: Economic Trends CSO) 

Table 1 -Employment in UK Public Services 1989 

Overall pay movements 

Until the 1970s the relationship between average pay in the public services 
and in the rest of the economy had been stable. Public service pay increases 
followed the average for the rest ofthe economy fairly closely. With the 1970s 
this came to an end.Itwas replaced by a cyclical patte~ofrelative pay decline 
followed by surges of catching up. The picture since 1971 is given in Figure 
1, which shows two different series for pay in the public services relative to 
earnings in the economy as a whole. The upper line uses aggregate data from 
the National Accounts. The lower line is derived from National Institute data 

2 


Public Service Relative Pay 1971 -89 

(as percent of whole economy average) 

Rela~ive 104 earnmgs 
National Accounts 

100 


,,

96 

' 

' 

r 

92 
88 


\ 

84 

'I 

National Institute 

80 


1970 1975 1980 1985 1990 

Figure 1 

on the actual pay rates of public services compared with average earnings 
figures from the New Earnings Survey. We shall start with the similarities in 
the two data series. 

The public services were first held back under the Heath government's 
efforts to restrain inflation without an explicit incomes policy. Then followed 
a sharp improvement in their relative pay position when, in 1974, reports of 
ad hoc inquiries into teachers' and 'nurses' pay coincided with index-linked 
'threshold payments' and with substantial reorganisation in the NHS and 
local government. Under Labour's Social Contract incomes policy, the public 
services again fared relatively badly. They were successfully held down to 
norms which were breached in much ofthe private sector and the nationalised 
industries. Their deteriorating relative pay led to the Winter of Discontent 
strikes of early 1979. These were terminated by the establishment of the 
Standing Commission on Pay Co~parability, chaired by Hugh Clegg, charged 
with the restoration ofcomparable pay levels with the rest ofthe economy. By 
the end of 1980, when the Commission was disbanded, this had been largely 
achieved. 

The biggest difference between the two series in Figure 1 concems what 
happens after 1981. The averages based upon the National Accounts imply 
that the public services have preserved their relative position; in sharp 
contrast the National Institute data suggest that the relative position of the 
public services has worsened to an unprecedented extent. How is this discrepancy 
to be explained? 

Part of the explanation is that the National Institute data are based upon 

3 


the rates of pay for only the lower grades of public service worker who have 
done badly during the 1980s relative to higher grades not covered by this 
index. More importantly unlike the National Institute data, the aggregate 
figures given in the National Accounts are not corrected for changes in the 
composition of the workforce. The 1980s have seen at least three major 
compositional changes which have all had the effect ofbiasing average public 
sector earnings upwards. First, there has been a shift in employment between 
occupations, away from relatively low paid occupations such as local govemment 
and soldiering and towards the more highly paid such as policing and 
health. Second, throughout the public services there has been a disproportionate 
shedding oflower paid workers as a result ofsub-contracting and privatisation. 
Third, those professions which have reduced recruitment, notably 
teaching and lecturing, have seen their average age and seniority rise with 
the consequent decline in the proportion oflower-paid new entrants. 

All this suggests that while the lower National Institute series in Figure 1 
somewhat overstates the relative decline ofaverage public service pay during 
the 1980s, the upper National Accounts series understates it to a substantially 
greater extent. But it would be wrong to dwell too long on these aggregate 
figures. A historically remarkable feature of the 1980s has been the sharply 
contrasting pay experience of different public service occupations. 

Table 2-Earnings Changes in Selected Groups 1972-90 

Percentage change relative to average of Real earning 
all employees' earnings change 

72-75 75-77 77-80 80-81 81-90 72-90 81-90 72-90 
Teachers -10 4 -20 15 -8 -21 12 13 
Police -18 11 11 6 6 13 29 61 
Nurses 4 11 -15 14 2 14 24 62 
Armed Forces -20 12 -3 1 -16 -25 3 6 
NHS Ancilliaries -12 12 -14 2 -24 -35 -7 -7 
Cent Govt Manual -23 22 -16 17 -15 -22 3 11 
Local Govt Manual -10 11 -16 3 -9 -22 11 11 
Town Hall Staff -23 7 -17 10 -17 -38 2 -11 
Civil Servants -18 18 -15 9 -15 -23 3 9 
Public Non-Manual -12 9 -12 10 -9 -15 12 21 
Public Manual -13 13 -15 4 -16 -27 2 4 
All Public -13 10 -13 9 -10 -17 10 18 
Whole Economy: 
Non Manual -3 0 0 2 3 2 26 45 
Manual 2 -1 -1 -3 -7 -9 14 28 
All Employees 0 0 0 0 0 0 22 41 

Note: Public manual =NHS ancilliaries, central govt, local govt manuals. 
Public non-manual = all other groups shown 

Source: National Institute Economic Review and New Earnings Survey 

4 


Real Weekly Earnings in Selected 
Public Services 1972-90 (1972 = 100)

Real 

earnings

160 

150 
140 
130 
120 
110 
100 
90 
80 

Town hall staff< . 
.. :·:·· 

. 
...···· 

I --


1970 1975 1980 1985 1990 

Figure 2 

Source: NIESR 

Pay variations within the public services 

Table 2 provides information on the relative performance of pay in different 
major occupational groups over the main phases ofthis recent erratic relative 
pay history, using National Institute data based on pay scales rather than 
actual earnings. The table also gives real earnings changes. Figure 2 shows 
year-to-year movements for key groups. There are clearly substantial differences 
in their relative pay experience. 

The period since the last major phase ofcatch-up at the start of the 1980s 
is of particular significance for future policy. It is apparent that, within the 
public services (as in the wider economy), manual workers have seen their 
position deteriorate with respect to non-manuals. This raises the question of 
what has been happening to pay structures within individual public services. 
It is also apparent that there have been substantial differences in the timing 
of changes in the relative circumstances of different groups, which counsels 
extreme caution in choosing a base date for comparison purposes; no single 
base date is satisfactory for all groups or can be taken at face value on its own 
for any one group. 

Accordingly, Table 3 provides data on actual earnings for more precise 
occupational groups from the large sample of the New Earnings Survey in 
order to shed light on what has been happening to pay differentials within 
health, education, and government. It does so for both 1979-89 and 1981-89, 
in order to pick up changes both before and after the last catching-up period. 

5 


Percentage change relative Percentage change in 
to all employees' earnings real weekly earnings 
1979-89 81-89 1979-89 81-89 
Medical practs (m) 25 1 55 26 
NHS nurses etc (f) 26 14 57 38 
Ambulancemen 1 -11 25 11 
NHS ancilliaries (f) -11 -14 11 8 
Hospital porters (m) -17 -17 4 4 
Hospital orderlies (f) -19 -16 0 3 
University teachers (m) 7 -16 33 5 
FE teachers (m) 0 -15 25 6 
Secondary teachers 10 -6 36 16 
Primary teachers 10 -7 36 17 
National govt admin (m) -4 -11 20 11 
Local govt adm in (m) -2 -13 21 9 
Roads weepers (m) -8 -9 14 14 
Refuse collectors (m) -11 -16 10 5 
Police constables (m) 8 1 34 26 
Low paid private 
sector males -13 -9 8 14 
Accountants (m) 18 10 47 38 
Finance specialists (m) 35 23.. 68 54 
all male employees 0 0 24 25 
all female employees 6 3 31 29 
all employees 0 0 24 25 

Note: index for private sector males based on NHS data on male cleaners, general farmworkers, 
repetitive assemblers, packers and bottlers and building labourers. 

Source: New Earrungs Survey 

Table 3 -Earnings Changes for Specific Groups 1979-90 

The occupational groups which it is possible to include in the Table are 
heavily constrained by the need to have significant sample sizes. In order to 
pick up what has been happening to low-paid male workers outside public 
services, we have also constructed a composite group ofthe unskilled in what 
are very largely private sector occupations. At the other extreme, to provide 
an indication of the experience of the high-paid in the private sector, we have 
included accountants, and the NES category of 'finance, insurance and tax 
specialists'. 

There are striking contrasts in what has happened to the internal pay 
structures of health, education and government. The relative position of 
medical practitioners and nurses has improved dramatically over both 1979 
and 1981. The ambulancemen experienced a substantial worsening of their 
position after 1981, which the settlement following the 1989/90 strike will 
have more or less rectified. But the remarkable contrast is with the portering 

6 


and hospital orderly staffwhose position has deteriorated far more than that 
ofthe unskilled in the economy as a whole. There has thus been a substantial 
increase in the inequality of payment among those involved with the health 
service in the 1980s. 

Some people might try tojustify this differential treatment within the NHS 
in terms ofrewarding superior qualifications, but that could not explain what 
has happened in education since 1981. All teaching staffhave fared relatively 
badly, but especially the more highly qualified further education, polytechnic, 
and university staff. If we consider the local government categories under 
which educational administrators, school caretakers and other ancilliaries 
fall, there can be no doubt that the whole of the British education service has 
seen substantial deterioration in its relative pay position over this period. 

There has also been a uniformly poor experience among the big battalions 
oflower grades in central and local government. Most ofthem ended the 1980s 
in a much worse relative position than they had been atthe time ofthe disputes 
a decade earlier. But not all govemment employees have fared badly. The 
police have received exceptionally privileged treatment. Itis also notable that 
the higher echelons ofthe Civil Service have done well by comparison with the 
lower ranks. The old grade ofAssistant Secretary has seen a 26 per cent rise 
in real earnings since 1981 as have medical practitioners and police constables. 
For Permanent Secretaries and Generals the rise in real eRrnings since 
1981 has been 37 per cent, comparable to that of accountants. 

Summary 

For the past twenty years all public service workers have been subject to 
extremely erratic pay treatment. In the 1970:;; this erratic treatment was at 
least fairly consistent acros~ the public services, and was largely the consequence 
ofsuccessive governments' attempts to use public sector pay to set an 
example in national incomes policies. 

During the 1980s there has been little consistency. Although the public 
services as a whole have seen their relative position decline, there have bee'n 
some occupational groups, most notably police, doctors and nurses, whose 
treatment has, by any standards, been extremely favourable. By contrast, 
other professional groups in public administration and in further and higher 
education have experienced sustained relative decline. 

The employees who have fared worst throughout the public services are the 
least educated. A high proportion of these are women. But their relative 
misfortune, in broad terms, reflects the substantial growth in inequality of 
payment across the whole economy. The relative position of private sector 
low-paid manual workers has also worsened in the 1980s. 

7 


2 


The current machinery 

Britain has entered the 1990s with a public 
service pay structure in disarray. This will 
breed short-run problems. 

T
T
he more conspicuous will be the messy and emotive industrial 
disputes among those who have lost out. Their bargaining position 
will strengthen with the tightening of the youth labour market 
through demographic changes. Any government that is forced, as its 
predecessors have been, to initiate a hurried 'catching-up' phase in response 
to strike action will then face a massive unplanned increase in public expenditure. 
Another, more insidious, short-run problem will be the steady loss of 
efficiency and commitment am~ngst the aggrieved groups whose relative pay 
has suffered. Their low morale leads to worsening servicef', ill-used equipment, 
and consequently cumulating cos~s. 

There will be longer-run problems for recipients ofthe services in question. 
The relative pay of the employees in any particular public service is an 
important indicator ofthe priority given to that service. The pay data suggest 
that the present British government, by design or default, currently places 
notably low priority on the care oflocal communities and on the whole range 
of education. In broad terms, remedial services have been given higher 
priority than those concerned with prevention or with human investment. The 
short-sightedness ofthis approach can be illustrated by observing that ifmore 
were spent on giving young people career prospects less would have to be spent 
on policing their misdemeanours. There will be enduring social and economic 
costs arising from the 'fire-fighting' character of recent public service pay 
policy. 

What has given rise to this position? We consider briefly the background of 
our current public service pay-fixing institutions and then the ways in which 
they are changing. The two features of public service pay fixing that have 
aroused most debate over the years are, first, the extent to which it is 
centralised and, second, the criteria by which it operates. 

Until the 1980s there was little to check a steady tightening of central 
control. Most evident in the Civil Service, this was also to be seen in the way 
that government officials were by stages placed alongside employer representatives 
in pay negotiations for the health service, police, probation officers, 
and teachers, and in the way they came to play an increasing part behind the 

8 


scenes in local government and the fire services. 

So far as operational criteria are concerned, there is one theme that 
dominates the history ofpublic service pay in Britain. Since way back into the 
last century a recurring criterion for pay fixing has been that ofcomparability 
with the pay ofworkers elsewhere. In the Civil Service a steady refining ofthe 
practice of comparison with similar jobs outside culminated in the establishment 
of the Pay Research Unit (PRU) in 1955. In the subsequent decade 
grievances provoked by government pay restraint gave rise to a series of 
one-off ad hoc commissions into the pay of particular groups: doctors and 
dentists, the police, the armed forces, and prison officers. All ended up by 
recommending a pay rise based on some form of comparability, sometimes 
somewhat idiosyncratic and always very favourable to the occupation in 
question. 

From the NBPI to Clegg 

This increasing reliance upon rather haphazard comparison was challenged 
by the National Board for Prices and Incomes, which had been created in 1965. 
The Board was initially opposed to any arguments based upon comparability 
on the grounds that they subverted pay rises linked to productivity, but by 
1969 the Board had conceded that there was little alternative to the use of 
comparability for many public servants. A similar U-turn was executed under 
the Heath government in 1972 when it first terminated all automatic comparability 
links and then, through the new Pay Board, reinstated them. 

Meanwhile, the winding-up of the NBPI in 1970 had necessitated the 
establishment of three standing pay Review Bodies to cover groups for whom 
bargaining was felt to be inappropriate: the armed forces; doctors and dentists 
in the NHS; and 'top salaries', covering senior members of the civil service, 
nationalised industries, the judiciary, and the armed forces. But the era ofad 
hoc inquiries was not over. In the early 1970s a period of public service 
discontent without precedent saw inquiries instituted for nurses and for 
teachers. As before their recommendations relied upon unsystematic comparisons 
and provided no basis upon which pay could be reviewed in subsequent 
years. 

Once again in 1975 incomes policy intervened, with the Social Contract 
policy suspending all official comparability or pay linkage schemes. And once 
again it was short lived, for by 1978 an inquiry into police pay established the 
most favourable formula yet achieved, the automatic 'indexation' ofpolice pay 
to average earnings nationally. After a prolonged strike the firemen achieved 
a similar settlement in 1978. By then the full extent to which public service 
pay was being held behind that in the rest of the economy under the Social 
Contract was becoming evident. In 1979, after the wave of'Winter of Discontent' 
strikes, all efforts to use other pay criteria were abandoned with the 

9 


establishment of the Standing (Clegg) Commission on Pay Comparability. 

Pay policy under the Conservatives 

A precondition for the creation of the Clegg Commission had been that the 
Opposition would agree to honour its findings if there were a change of 
government. When approached by Callaghan on this, Thatcher agreed. Her 
government honoured the agreement and met the considerable costs of'catching-
up' as the Commission's reports on different public services came out over 
the year following her election victory. With these complete, the Commission 
was abolished and the phrase 'pay comparability' was once again thrown into 
political perdition. 

The official position of the government was to distance itself from public 
service pay fixing and to expose the latter to the discipline of market forces. 
To this end compulsory tendering was introduced and sub-contracting to the 
private sector encouraged. Besides the wider legislative campaign against 
trade unions, a variety of professional associations had their powers undermined, 
in education, health, local government, and the law. There was a 
repetitive rhetoric in favour of decentralising public service pay bargaining 
and there were repeated attempts to oblige employing bodies to pay according 
to local labour market circumstances. 

Reality has been different.The Review Bodies for armed forces, doctors and 
dentists, and 'top salaries', have continued. To them in 1983 was added one 
for nurses and midwives as a reward for the Royal College of Nursing 
forswearing strike action. Another large non-TUC union, the Police Federation, 
has continued to benefit from indexation, along with the firemen, 
although the ambulance workers failed to achieve the same result from their 
1989/90 dispute. Members of Parliament achieved a long ambition by having 
their pay linked to the Civil Service in 1988. 

The Review Bodies are annually urged by the government to operate by 
criteria other than comparability, but they continue to ignore the instruction. 
They use the Office ofManpower Economics to carry out pay surveys and then; 
in their annual reports, they patiently explain once again why notions of 
productivity and market forces have little applicability for the groups with 
which they deal. The government has chosen to do little more than tinker with 
the timing of their awards. 

In contrast to the rhetoric of decentralisation, most public service pay 
bargaining has seen continued tightening of central Treasury budgetary 
control during the 1980s. The most extreme case has been that of school 
teachers who had their Burnham negotiating arrangements suspended in 
1987 and replaced by a centrally administered pay structure. Local government 
has been contained first by rate capping then by introduction of the 
Community Charges. Polytechnics have been transferred from local to central 

10 


government and, like universities, have had the form and terms of pay 
settlements increasingly controlled by the Treasury. 

The Civil Service pay system has had a decade of shifting fortunes. The 
scrapping of the Pay Research Unit in 1981 was accompanied by the establishmentofthe 
Megaw Inquiry.Its report criticised the old system for slavishly 
adhering to comparisons with the outside world to the neglect ofthe managerial 
potential of intemal pay structures. It argued for a looser attention to 
outside pay trends and more priority 'to sustaining settled and coherent 
intemal relativities'. It argued against decentralisation and against greater 
geographical differentiation of pay rates. The govemment responded by tentatively 
introducing performance related pay and then a growing measure of 
decentralisation, not geographically, but by separating functions and by the 
establishment of partially independent 'agencies'. Some of the Megaw advice 
has been heeded in the development of common pay 'spines' for the Civil 
Service, coherent intemal pay structures onto which separate occupational 
and functional pay structures are pegged. 

The fragmentation ofnational pay agreements 

The present Conservative government is relying heavily upon the fragmentation 
of public service bargaining as a means to control costs and improve 
labour utilisation. In addition to the steps just mentioned in the Civil Service, 
pressure has been placed on the Review Body for nurses to regionalise pay 
bargaining. The Review Body's response has been cautious and critical, 
arguing that the opportunity to supplement national rates in response to local 
pressures could become a 'soft option for poor management'. The government 
nearly succeeded in forcing universities to bargain separately in 1989, and 
notice has been served of similar pressure on schools and polytechnics in 
future. The local authorities have also been encouraged to move to local 
bargaining, ap.d in 1989 thirteen councils in the South East broke away from 
national pay bargaining in order to pay more in response to local labour 
shortages. 

The policy ofdecentralisation is, we shall argue, doubly flawed. It is based 
on a fallacious view oflabour market mechanisms. It also mimics a misunderstanding 
of private sector practice. But one can understand why it has 
gathered su._ch momentum through an appreciation of the quite exceptional 
labour market circumstances of London in the 1980s. 

Over many decades average earnings in the London area had stood at 
approximately 15 per cent above the average for the whole country, and those 
for the 'rest of the South East' had remained at around the national average. 
This was the case as recently as 1979. But by 1985 the average for the London 
area had risen to 21 per cent above, and by 1989 to 29 per cent above the 
national average. By 1989 the 'rest of the South East' had risen only slightly 

11 


to 4 per cent above the national average. Elsewhere in the country, however, 
there was no increase in the dispersion ofregional pay. Inter-regional differentials, 
which had narrowed substantially in the 1970s, showed no sign of 
diverging in the 1980s. In summary, in an increasingly homogeneous national 
labour market, there has been a crisis specific to London. It has arisen from 
changes in industrial structure (notably the growth ofemployment in private 
services), from shortages in skills (with the government's neglect of training 
in the 1980s) and from housing shortages (exacerbated by restrictions on land 
use for building). 

London-based policy-makers have responded to their local crisis as if it 
reflected a national problem. They have failed to appreciate thatthe scrapping 
of national agreements would expose non-metropolitan public service managers 
to the instabilities oflocalleap-frogging. Indeed, so accustomed have they 
come to a non-metropolitan labour force subdued by high unemployment that 
they have forgotten the crucial stabilising role that can be played by national 
agreements in highly unionised industries in times of rising expectations. 

They have also misunderstood the decentralisation ofbargaining that has 
been occurring in the private sector. Over the past twenty yea_rs private 
industry has tended to move away from following the industrywide 'national' 
pay agreements covering many employers in favour of agreements specific to 
individual companies. In addition, large companies have tended to decentralise 
bargaining internally. But it has not been a desire to exploit the 
opportunities of local labour markets that has driven these changes. Employers 
have been primarily concerned to relate pay more to the particular 
profit and productivity circumstances ofdifferent product markets. 

Recent research makes clear that where pay bargaining has been decentralised 
within a private sector company, it has usually been on the basis of 
what the employees in question are producing, rather than where in the 
country they happen to be working. Within a particular product division, 
however scattered its sites are around the country, private sector managers 
are generally diligent in upholding a coherent pay structure. Indeed, this 
practice is likely to have been an important factor contributing to the trend of 
converging average earnings between regions outside the South East over the 
last twenty years. Their reaction to the more recent crisis in the London area 
has been particularly interesting. It has not been to scrap this policy, but to 
build up quite specific and identifiable London 'allowances'. 

Funtional decentralisation 

We conclude from this that the rhetoric of 'decentralisation' makes no economic 
sense for pay in the public services if it is taken to mean geographic 
decentralisation. It will merely provide local managers with another reason 
for making pay concessions. In congested areas these will feed through into 

12 


increased housing prices. Decentralisation of pay fixing is feasible in the 
non-geographic, functional sense only insofar as the separate functions are 
truly independently accountable. For example, central government has recently 
given greater independence to, among others, the Inland Revenue, 
British Nuclear Fuels, and HMSO. But this will only lead to their having 
greater control over the link between their pay and the efficiency and the 
quality of their services ifthey also have the discipline oftheir own financial 
and performance targets. 

Decentralisation of pay bargaining can have few benefits in hospitals, 
universities, schools, refuse disposal, policing, probation and the like, where 
the government, for good reasons, retains centralised financial control. There 
are no clear performance indicators for these services whereby geographical 
discrimination could be used as a management tool. The level of literacy, 
lawlessness, sickness, housing, insanity and so on of the local public depends 
upon many exogenous factors which would impede any attempt to measure 
the services' local 'value added' sufficiently accurately to be other than a very 
crude instrument. Itwould certainly be much too crude to be a sound basis for 
fixing local budgets and for bargaining local pay supplements. 

As significant as the question ofmanagement control is the integrity ofthe 
public service professions. A national pay structure is an integral part of the 
means they use to maintain their professional standards. It is also crucial in 
facilitating geographical mobility of labour within the professions. Fragmented 
bargaining within individual public services could be expected to give 
rise to an increasingly uneven quality ofservice nationwide. 

The first lesson from the private sector is thus that the management 
structures of the public services should not be distorted by a generalised 
response to the peculiar circumstances of London. These have always been 
unique, and can best be dealt with by unique allowances. The severity ofthese 
circumstances in the late 1980s is already diminishing as housing prices begin 
to balance out nationally. 

The second lesson is that it is foolish to decentralise pay bargaining 
geographically in services which still possess clear national coherence in terms 
offinance, regulation, and occupational integrity. To attempt it is a prescription 
for leapfrogging comparability claims, geographical immobility, and low 
professional morale. 

13 


3 


Acoherent pay policy 

The diversity ofpast experience has provided 
much from which policy makers might learn. 
We shall start with what it clearly advises 
against, and then move on to more positive 
lessons. 

T
T
here can be no justification for returning to the old cyclical pattern 
whereby a period of public service pay restraint is followed by an 
explosive phase of catching up. Past episodes have always proved 
electorally damaging and they have greatly disrupted the efficient 
management ofthe services in question.The trade unions involved canhardly 
be expected to persuade their rank-and-file of the merits of peaceful bargaining 
when the lessons of the past suggest that disruption is the surest means 
of restoring eroded relative pay. 

There are dangers in ad hoc inquiries into the pay problems of specific 
public services. Past experience suggests that they become unduly biased in 
favour of the occupation in question. The result is at best an exceptionally 
favourable pay rise which is used as a datum point for grievance for years to 
come. The 1974 enquiry into nurses' pay was a case in point. At worst the 
result is a rigid formula for future pay rises which other groups try to 
generalise into an economically unrealistic formula for the whole ofthe public 
services. The recent efforts of ambulancemen to attach themselves to the 
formulae given to police and firemen illustrates this. 

The Review Bodies are an improvement on ad hoc inquiries because they 
have continuity from one year to another and thus have, to some extent, to 
live with their past decisions and to develop a degree ofconsistency over time. 
But their composition tends to make them advocates on behalfof the occupation 
they are exclusively concerned with, rather than dispassionate assessors 
ofthebroader scene. Itwould be no solution to create additional Review Bodies 
to cover services and occupations which do not yet have them. 

No satisfactory public service pay formula can be based upon automatic 
indexation, whether to average prices or to average earnings. Apart from the 
problems such formulae pose for macro-economic policy, they deny employers 
a vital managerial tool. As we shall now discuss, without some discretion to 
bargain over pay structures it is vastly harder to achieve productive change. 
Some future government will have to deal with the lazy decision of the last 

14 


Labour government to index police pay. Apart from creating a serious anomaly, 
it has generated absurd debates about the supposed distinctive qualities 
of'emergency services'. 

The Labour Party's 1989 Policy Review contains a terse statementon public 
service pay: 'In the public sector, we shall provide clear guidance to management 
as to the financial structure within which they must operate and then 
leave them free, subject to our firm commitment to a national minimum wage, 
to negotiate wage settlements within that framework. Ifthey fail to meet their 
fixed targets, they will not be given the soft option of raising prices, but will 
be replaced. On pay generally, we reject a pay policy or any form of pay norm 
as being unhelpful and unworkable'. 

The Policy Review is thus proposing, in effect, a cash limit policy ofthe sort 
that fared so poorly in the early 1980s with the added spice that managing 
boards which allow large pay settlements will be sacked pour encourager les 
autres. But in public services, where the bulk of costs are labour costs, it is 
naive to pretend that the 'financial structure' can be established by the 
Treasury without an implicit 'pay norm'. The Policy Review thus effectively 
contradicts itself within three consecutive sentences, leaving no remaining 
shred of guidance on the matter. The brief reference to public sector pay in 
the 1990 document Looking to the Future fails to clarify the position. 

Necessary conditions 

Much can be learnt from the combined experience ofClegg and Megaw. Itwas 
in the terms of reference of the Clegg Commission that it should investigate 
'the possibility ofestablishing acceptable bases ofcomparison with terms and 
conditions for comparable work', and in the short time available his Commission 
used two techniques. Where there were substantial numbers of 
employees doing like jobs in the private sector, the now defunct Pay Research 
Unit was used to carry out 'job-for-job' comparisons. Where there were not 
sufficient co;mparable jobs elsewhere, management consultancy firms were 
used to apply job evaluation techniques-a method already used by the Review 
Body for the Armed Forces. Itwas found that off-the-shelfmeasures developed 
for industrial jobs were inadequate to cope with the different characteristics 
called for in jobs such as nursing and teaching. Clegg did not have time to 
develop anything more appropriate. 

The Commission's swan song was a General Report which analysed its 
experience in some detail and outlined a down-to-earth course of action for 
any official body that might later be called on to resume a similar task. It 
considered that suitable 'factor plan' techniques could be jointly developed 
which would meet the particular needs ofthe·main public service professions, 
and suggested thatthis might be accompanied by parallel 'job-for-job' comparisons. 
It also recommended that there should be a single agency, such as a 

15 


modified Office of Manpower Economics, concerned with gathering data and 
standardising definitions and job descriptions for all public service pay research. 
Clegg did not envisage the need for a large stafffor a future standing 
commission, calling only for the addition of an independent job evaluation 
expert and the capacity to inquire into the industrial relations circumstances 
of particular cases,. 

On one crucial issue the Clegg Commission was adamant. It should not 
have been asked to act as arbitrator. It should not, in other words, have been 
required to award specific pay rises that were binding upon the parties 
concerned. This conclusion is ofgreat significance. Itis frequently argued that 
the public services should have 'no strike deals' whereby disagreements would 
end in compulsory arbitration. That might make sense if 'correct' pay levels 
were precise and uncontroversial amounts, which could be arrived at by some 
objective means. But they are not. 

When arbitration becomes the normal means of pay fixing, the arbitrators 
in practice have to take steps to avoid inconsistency between different awards. 
In effect they have to develop their own tacit incomes policy. Under very 
special circumstances this may be necessary, but it does not prevent their 
becoming the target ofdiscontent. Itgenerates frustrations for employees and 
their unions who come to feel distanced from the pay fixing process and often 
lose touch with the harsher realities of bargaining. It tends to breed deeper 
resentment with employers, who accuse arbitrators of neglecting market 
forces and of creating inflexibilities, and with governments, who typically 
complain that the arbitrators ignore national economic priorities. 

Clegg noted the well-established empirical finding that the interplay of 
labour market and product market forces leaves a substantial margin of 
indeterminacy within which pay levels might be fixed, and that it is the role 
ofcollective bargaining and managerial skill to determine where within that 
margin a settlement might be reached. He concluded that a standing commission 
could be expected to provide authoritative data on the range of 
comparable pay levels, but that it should leave it to the negotiators to achieve 
the precise settlement. 

Private sector practice 

Itis here thatthe later analysis ofthe Megaw Commission becomes important. 
Megaw's view was that the Pay Research Unit had tried to follow job-for-job 
comparisons too slavishly. It was preferable to follow the exampie of large 
private sector corporations, keeping pay levels broadly in line with external 
trends,but placingfirst priority on maintaining'settled and coherent'internal 
pay structures. These are the basis on which employees can be offered the 
career structures that will encourage them to take on new skills and responsibilities. 
They are of substantially greater motivational significance to the 

16 



employees concemed than the vague notions that they might have about 'fair' 
comparisons outside the organisation. The ability ofmanagers to have control 
over their intemal pay structure is essential for eliciting productivity from 
employees, whether through effort levels, changed working practices, or 
additional training. 

In summary, Clegg's experience had much to say about the technical 
problem of making sensible extemal pay comparisons and also about the 
institutional circumstances under which they could be made effective. 
Megaw's contribution was to demonstrate that less need be demanded ofthese 
extemal comparisons. The need is not to bind intemal pay levels tightly to 
extemal comparisons, butto make the bindings sufficiently few and sufficiently 
loose to protect the integrity of the intemal pay structure. 

Institutional implications 

What implications can we draw from this discussion of past experience? 

• 
The first is that the issue ofcomparability cannot be ducked. Sooner or later 
it has always become a central issue in fixing public service pay. Ifit is left 
till later comparability has usually been applied rigidly, expensively, and 
inefficiently as a panic measure. 
• 
The second is that there are good reasons for not applying comparability 
principles in dogmatic detail. A broad degree of comparability should be 
preserved but the integrity of an intemal pay structure should not be 
subordinated to specific extemal comparisons. There should be a margin 
within which managers can protect the motivational potency of intemal 
pay structures and within which employers and employee representatives 
can bargain over domestic issues offaimess and flexibility. 
• 
The third is that the separate public services should be entitled to regular 
pay reviews -probably annually -for which they should have uncontroversial 
and sound comparability data. These would, of necessity, be 
retrospective, based on settlements already reached elsewhere, so that 
public service bargaining could be clearly seen to follow, not lead, the pay 
fixing process. But these data would provide the background for bargaining 
and not, it should be emphasised, an automatic linkage. It is possible to 
envisage sound managerial and economic reasons why a particular year's 
settlement for one public service might be either below or above whatever 
level might be suggested by the crude use ofcomparability. 
• 
The fourth is that a single commission should oversee all public service pay 
survey work, superseding the Review Bodies and possiblyincorporating the 
Office of Manpower Economics. It would have the capacity to develop 
appropriate job evaluation expertise and a small research staff to enquire 
17 



into the industrial relations circumstances of particular public services 
when, for example, pay arguments revolved around issues ofpay structure 
reform or retraining. 

• 
The fifth is that this body, which might be called the 'Public Services Pay 
Advisory Commission' must be seen to be independent. Its independence 
could be ensured by a governing council like that ofthe Advisory, Conciliation 
and Arbitration Service, ACAS, with experienced individuals some of 
whom would be nominated, but not delegated, by the CBI and TUC. As 
specific public services came up for consideration it might wish temporarily 
to eo-opt from a panel of people with appropriate specialist knowledge. It 
would be of supreme importance to protect the data that the Commission 
provided from partisan (or government) doctoring. It would be expected to 
account for itself and its methods to Parliament in an annual report. 
• 
The sixth is that this Advisory Commission must be seen as permanent. It 
is only by assuring the public service unions that their pay will not again 
be left behind that they can be expected to negotiate reciprocal assurances 
on industrial peace and on co-operation with change. An appropriate 
constitutional form might be a royal charter.It is worth recalling the recent 
history ofbipartisan support for such matters.At considerable cost to their 
new governments, Wilson honoured Heath's 'threshhold payments' in 197 4 
and Thatcher honoured Callaghan's Comparability Commission in 1979. 
Public service unrest has such damaging electoral consequences that governments 
are likely to acquiesce in a bipartisan solution so long as they are 
convinced that the operation of the Commission is not inhibiting public 
service managements from innovation. 
The longer term 

The British public services are (with the exception ofthe Armed Forces) highly 
unionised. The purpose of the Commission would be to make collective bargaining 
more effective rather than to displace it. It would be to allow public 
servants the opportunity to participate in keeping their pay in line with pay 
levels in the economy they serve without being forced to disrupt the services 
to which their careers and self-esteem are overwhelmingly committed. 

Such a body might be expected, over time, to develop a role as honest broker 
in developing a coherent strategy in public service pay. This could, for example, 
include the development of common views on the relationship between the 
employer's obligation to provide training and the employees' expectations of 
career progression. The Commission might encourage collective discussions 
among public service employers on matters of common interest. It could 
develop close working links with the public service unions through the TUC. 

This may be felt to be a weak body, unable to solve disputes at a stroke, 

18 


unwilling to sort out the really tough questions ofrelative pay such as whether 
an experienced school teacher should earn more than an experienced police 
officer. Thatis deliberate. The public services are inextricably intertwined and 
there are important political questions involved in the choice of priority. We 
mentioned earlier the relative emphasis between prevention and cure. Should 
some emphasis be shifted from dealing with illness through the health service 
to promoting hygiene through local authorities? Do we put resources into law 
enforcement andincarceration thatwould be betterspentongiving potentially 
delinquent young people training and career opportunities? These are, and 
must remain, questions for Parliament and the fact that they may be reflected 
in relative pay levels between public services is not a reason for shuffiing them 
off on an unelected Commission. 

The public services pose a distinctive set ofproblems to any government as 
ultimate employer. Most of them are overwhelmingly the dominant provider 
oftraining for their employees and the dominant provider of their service, and 
they face no substantial overseas competition. A major advantage ofavoiding 
rigid comparability is that a government would have a degree of discretion in 
bargaining over relative pay between the services which could reflect its 
long-term plans in training for, and providing, the services in question. 

Implementation 

There is no reason why a Public Services Pay Advisory Commission could not 
be established rapidly with the existing experienced staff of the Office of 
Manpower Economics and the Review Bodies. Its survey work, while rigorous, 
would need to be less detailed than hitherto. Our earlier.statistical analysis 
showed that some groups are likely to be identified as having fallen seriously 
behind non public service c_omparators -the clearest cases being in local 

Table 4 -Cost estimate for restoration of 1981 relative pay levels 

wage and % cost of main 
salary bill change increase employer 

£m £m 

General Public service 5638 3 169 CG 

Defence 7815 3 234 CG 

Public Order/Safety 6136 1 61 LA 

Education 14080 10 1408 LA 

Health 12420 3 373 CG 

Social Security 4084 5 204 LA 

Housing/Amenities 1694 7 119 LA 

Recreation/Culture 1171 7 82 LA!CG 

Other 2181 3 62 LA/CG 

Total 55219 4.9 2713 

CG = Central Government, LA= Local Authorities. Source: UK National Accounts 1988. 

19 



government and education. But others, such as police, prison officers, ambulance 
staff and the medical professions, would need little special attention in 
terms of pay. This is not, ofcourse, to deny other discontents that they might 
have as a result of the severe depletion of complementary resources. Many 
nurses would say that satisfactory pay levels are not enough to ease the hurt 
caused to their professional pride by closed wards and long waiting lists. 

What would be the cost ofimplementing a policy ofthis sort? Table 4 draws 
on National Accounts data for 1988 to provide the basis for a very crude 
estimate ofthe cost ofrestoring the relative position ofpublic service pay that 
prevailed in 1981 after the completion of the Clegg Comparability Commission's 
work. The table simply estimates the cost ofraising the wage bill of 
each public service sector by the percentage necessary to restore the pay ofthe 
major occupational groups, relative to their private sector equivalent, to the 
position that prevailed in 1981. It takes no account of any additional costs 
which might result from the Labour Party's promised minimum wage. Such 
legislation would be a quite separate matter from comparability and would, 
in any case, affect public and private sectors alike. 

The table implies that the overall cost of restoring broad comparability 
would probably not amount to more than a 5 per cent increase in the pay bill 
ofthe public services as a whole. At 1990 prices it would be ofthe order of£3.2 
billion, equivalent to 40 per cent of tax relief on mortgages, or 14 per cent of 
military expenditure, or 1.5% of total government expenditure. These rough 
figures provide a feel for the size of the problem. 

It will be apparent that half the total cost of restitution comes from 
remedying past neglect of education. This highlights the fact that the cost of 
implementing this policy should not be seen narrowly as the cost of a public 
service pay policy, but more broadly as a necessary part of Labour's central 
policy commitment to a better educated and more compassionate society. In 
other words, the estimated cost ofsomething around £3 billion for implementing 
this public service pay policy should not be seen as a separate additional 
commitment for a Labour government, but as largely a part of its existing 
commitments. Even so, the additional expenditure involved is substantial and 
serious consideration would have to be given to the phasing in of these pay 
increases. 

Any costing exercise is best followed by some reflection on the consequences 
of inaction. If nothing is done it is highly likely that there will eventually be 
growing unrest in the public services. The electoral damage threatened by this 
will, on past experience, provoke the severe economic costs ofa crisis reaction. 
In the longer term a failure to act will lead to the social and economic costs of 
worsening public services: public squalor, declining educational standards, 
and an increasingly desperate underclass. Remedying a decade's neglect of 
public investment in people will inevitably be expensive. But the costs of 
inaction are even greater. 

20 



Apublic services pay policy

......................................................... 


Over 5 million people are employed in public services in Britain 
-one employee in five. Despite this, no government has 
developed any long-term strategy for public services pay. A 
major victim of this casual approach has been the quality of 
public services offered. 

William Brown, Professor oflndustrial Relations at Cambridge 
University, and Bob Rowthorn, Reader in Economics at 
Cambridge, analyse what has happened to public service pay in 
recent years, and the extent to which the pay structure has been 
distorted. They look at the problem of pay-fixing, and 
recommend the creation of a Public Services Pay Advisory 
Commission, similar to ACAS. This should be permanent, 
superseding existing Review Bodies, and have the capacity to 
develop job evaluation expertise. And it should be independent 
from government control. 

The authors conclude by looking at the problems of transition to 
a more coherent policy. They argue that the cost of restoring 
broad comparability with the 1981 position would not add more 
than 5% to the public services pay bill. Half of this amount 
would be to remedy past neglect of education, and so would be 
central to Labour's strategy, rather than an additional 
commitment. 

The Fabian Society 
brings together those 

who wish to relate 
democratic socialism 
to practical plans for 
building a better society 
in a changing 
world. It is affiliated 
to the Labour Party, 
and anyone who is 
eligible for membership 
of the Labour 
Party can join; others 
may become associate 
members. For details 
of Fabian membership, 
publications and activities, 
write to: 
Simon Crine, General 
Secretary, Fabian Society, 
11 Dartmouth 
St, London SWlH 9BN. 

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