Government must reform public sector pay systems not implement a cap, experts warn

The government should scrap national pay rates and introduce more performance-related pay to cut the public sector wage bill, rather than cap pay awards, experts have said.

In Wednesday’s Pre-Budget Report, chancellor Alistair Darling announced that public sector pay rises would be capped at 1% between 2011-13. He also revealed that the government would contribute less towards public sector pensions, while making high earners contribute more, in a bid to save £1bn.

Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, told Personnel Today these measures could begin to address costs but would do nothing to address pay inefficiency in the public sector.

“To get real value for money in the public sector, the government needs to firmly link employee pay to service delivery and performance,” he said. “It needs to move away from rewarding people simply for long service to a model where employees are rewarded for success.”

To help achieve this, the government should move away from nationally set rates of pay, allowing organisations to increase pay for key jobs where there are shortages and for those who are high performers, while freezing pay where there is no market reason for an increase, Cotton added.

Gillian Hibberd, president of the Public Sector People Managers’ Association, echoed Cotton’s comments and warned the chancellor’s proposed pay award cap would hinder recruitment. She added local authorities needed more autonomy to set pay levels to ensure the right talent could be attracted and retained.

“The national pay cap is going to exacerbate recruitment problems,” she said. “In areas such as children and social services, some authorities have vacancies running at 50%. How are they supposed to attract good people?”

On pensions, Cotton warned that reducing contribution levels and making higher earners contribute more will not significantly reduce the cost burden.

“What is needed is a more fundamental review of what is sustainable in public sector pensions,” he said. “The public sector needs to look at cost-effective measures, such as schemes where part of the pension is defined, up to a certain amount, and then anything on top of that has to be done through a private provider.”

Hibberd agreed that pension reform was the key to addressing costs. “The final salary pension scheme is unaffordable,” she said. “We need an adult debate on the way forward.”

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