Regional Pay, Local Pay, Either Way It's A Nightmare For Lib Dems

Letters written by the Lib Dem Chief Secretary to the Treasury Danny Alexander were published on Friday morning, suggesting the number two minister at the Treasury appeared wildly enthusiastic about civil servants being paid different amounts depending on where they work as recently as the start of this year.

But subsequent letters show Alexander softening his stance, suggesting he's come under pressure from fellow Lib Dems over the proposals, confirmed by George Osborne in the 2012 Budget. The Chancellor announced he was looking at local pay variations for civil servants working at the Department for Transport, The Department for Work and Pensions and the Home Office.

In the letter, sent from Alexander to the First Minister of Wales in January of this year [PDF], the Chief Secretary to the Treasury wrote: "I am keen to see local, market-facing pay introduced across the UK."

But in a subsequent letter from Alexander to the Welsh finance minister Jane Hutt [PDF], Alexander's tone had softened, saying only: " I believe there may be benefits to local areas across the UK of more local, market-facing public sector pay."

That second letter came just after the Budget, and suggests on the face of it that something caused Danny Alexander to water down his rhetoric on the plan.

Clegg's comments were siezed upon by a group of backbench Lib Dems as an apparent veto on regional pay deals for civil servants. Their letter to The Guardian on the 16th of May sounds was a strange mix of celebration and warning shot.

"We trust that Nick and the government will continue to respond to the obvious balance of evidence in this matter," they wrote.

But within a matter of days The Observer reported that plans to divide the civil service into regional pay zones were continuing.

Leaked proposals suggested Wales and Lib Dem strongholds in the south-west of England would be lumped together in a region where civil servants would end up being paid less than elsewhere. The government maintains any plan wouldn't see the whole area lumped together, and that there's a difference between "regional pay" and "local pay" variations.

Number 10 says the discussions going on at the Treasury are about local pay, not regional pay. There would be pay zones set up, but they wouldn't carve the country up into distinct regions. Instead areas would be allocated a pay-zone, which would translate into quite a patchy map of England and Wales.

What the government appears to be looking at is a system where someone in an outlying area might get paid less than someone working in an inner-city area. The Birmingham Post suggested this would mean someone working in the public sector in Dudley eventually earning less than in Birmingham.

This model already exists at the Ministry of Justice, which adopted local pay variations for the Courts Service in 2007. Those changes saw, for example, Manchester and Portsmouth put into the same pay bracket for courts staff.

So although it doesn't seem like it on first reading, actually Clegg and Alexander are not contradicting each other. That doesn't mean there isn't a problem within the Lib Dems over this, though. To find that you only have to go back the backbench MPs' letter to The Guardian on the 16th of May, where they write:

There are many myths about the inflexibility of public sector wage settlements, but following calls for evidence by pay review bodies, distorted comparisons between the public and private sector workforce have been widely dismissed.

They ignore the differences in the types of jobs as well as the age, gender, qualification and skill levels of staff in the two sectors, blind to the fact many of the lowest paid public sector jobs have been contracted out to private firms.

These comments are almost identical in tone to the arguments being made by the unions, who oppose any form of pay variation - local, regional, whatever. And if you look at the Lib Dems who signed that letter (Lorely Burt in Solihull, Andrew George and Stephen Gilbert in Cornwall), it's clear that people in their seats would be the sorts of people to see a pay freeze under any local pay variation.

The row will come to a head next month, when the independent pay review body will report back to the government on whether local pay could work in other departments, in a similar fashion to the courts service.

Separate to that is the widespread belief that government departments are thinking about having pay variations within the civil service, and there's no independent pay review body for them. The government could make the changes arbitrarily.

Apart from the Lib Dem trauma (which has the potential to be another Pasty Tax-like spat), any attempt to set up pay zones in Wales would cause an enormous headache.

Take the DVLA in Swansea, which Whitehall has control over directly, and as such could introduce local pay for civil servants. The problem for ministers is that the NHS in Wales is devolved and so the Welsh Assembly government would have the final say on any local pay variation. The Labour government there wouldn't agree to this and published Alexander's letters on Friday as a way of demonstrating their opposition.

Any variations in pay within the civil service also suffer from a further complication; there is a pay-freeze in place at the moment but it wasn't introduced evenly. Some departments are coming out of it in this financial year, others not until the following one. Decisions on pay for civil servants couldn't be taken all at once.

If the government wants to go down this road, it will cause huge amounts of stress, complications and anger. The prize for ministers is the potential to save quite a bit of money in the long-run, but the political pitfalls along the way are almost too numerous to count. You have to ask why ministers would even go there, unless they were really, really desperate for the cash.