Friday, 24 August 2012

Regional Pay & Crowding out, more Tory malice

George Osborne's "Millionaire's budget" in March 2012 has already taken an absolute battering from the press and public alike. He was forced into humiliating climb-downs on his proposed "pasty tax", the "static caravan tax" and the "philanthropy tax". These U-turns demonstrated how badly thought through his proposals were, however there are a number of other budget proposals still standing; amongst the worst of which are a stunningly hypocritical tax break to allow British companies to dodge Third World taxes by exporting their profits to tax havens (from a man who boasted only months before that "With this coalition government the hiding places for tax cheats are systematically being shut down") and another scheme to attack public sector wages by introducing "Regional Pay". 

Osborne's stated reason for trying to undermine the pay of public sector workers in low income areas is that the private sector is "crowded out" of poor areas by high paying public sector jobs. The implication being that if public sector pay is slashed, then the private sector will flood into the poor areas to provide plentiful low-paid work.

In June 2012 Tory backbencher Guy Opperman (the only Tory MP from the entire North-East region) spoke out against Regional Pay, claiming that there was no economic argument for the introduction of regional pay. He was quoted by the Daily Telegraph as saying I see no economic argument for introducing regional pay. Our current pay system, which sets a base pay rate, already allows for adjustments in high cost areas like London.

1. Public and private sector employers do not compete for the same workers.
2. Crowding out theory cannot work when unemployment is high.
3. Private sector pay does not vary hugely across the regions.
4. Private sector job creation and job losses appear to be completely unaffected by public sector pay.
5. Public sector employment isn’t crowding out, it actually supports the local economy.
As if criticism from within his own party and a comprehensive evidence based demolition of Regional Pay are not enough, there are numerous other arguments to be made against the policy too:

Many people that work in less wealthy areas commute in from wealthier areas with higher living costs, mortgage repayments and council tax rates. If pay is to be cut in less wealthy areas it may disproportionately effect these people. If this is taken into account and only people who actually live in the less wealthy areas suffer the pay cuts, they could end up getting less pay than a colleague doing exactly the same job but commuting from a wealthy area to do it, which would hardly be fair.

Another foreseeable problem with Regional Pay is the huge size of certain public sector organisations. Take Primary Care Trusts as an example. Many Primary Care trusts encompass very diverse communities. There are many examples of PCTs that include very wealthy rural market towns or suburbs alongside extremely deprived post-industrial towns or poverty stricken inner-cities. Either certain places are going to end up misclassified as poor or wealthy due to their exceptional nature within their particular Primary Care Trust, or Regional Pay must be extended down to the sub Primary Care Trust level, dependent on the wealth of the specific sub-locality. Such sub-regional pay bargaining would almost certainly turn out to be a bureaucratic nightmare that may actually cost the taxpayer more to administer than it ends up saving through payroll cuts.

Another strong argument against Regional Pay is that public sector workers in less wealthy areas often have a much higher workload than workers in picturesque market towns or leafy suburbs. This is especially true in health, social services and policing, where public sector employees in very deprived areas have many more extremely challenging cases to deal with due to the proven links between poverty and issues such as poor general health, mental health problems and criminal behaviour. There is actually an argument to be made for higher public sector pay in more challenging areas, however the current arrangement provides some incentive for public sector workers to choose to work in more challenging areas, since they can benefit from the slightly lower cost of living and significantly lower rent or mortgage repayments.

The introduction of Regional Pay would remove this kind of "cost of living incentive" leading to a brain-drain, as public sector workers are incentivised to seek work in high pay regions, meaning that the wealthier regions get the pick of the talent, whilst the poorer regions are left with the leftovers that couldn't find work in the higher pay grade areas.

The flight of talented public sector workers out of poor areas would inflict socio-economic damage on the local economy, with poorer health services and higher crime rates due to inadequate policing being easily foreseeable consequences. Another economic consequence would be the reduction in demand at the local level as public sector workers are forced to cut their spending in order to get by on their diminished wages, meaning that local shops and businesses would feel the squeeze. The Tory justification that the local economy would benefit from the creation of new private sector jobs relies on the fallacy that they have been "crowded out", when in fact the crowding out effect doesn't exist in areas of high unemployment. Rather than incentivising private sector businesses to set up in poorer regions, it is conceivable that they may actually be incentivised to leave the region due to rising crime rates and declining standards in local government services caused by Osborne's Regional Pay experiment.

Given the wealth of socio-economic evidence against Regional Pay and the fact that Osborne's stated "crowding out" justification for the policy has been completely discredited, one should be left wondering what the real reasons are behind Osborne's determination to drive through this policy. 

There seem to be four key reasons for Osborne's determination to force through these changes despite the wealth of evidence that they could be extremely counterproductive.

1. The Tory ideological opposition to the public sector: Osborne is simply acting out the small-state Conservative mantra. The socio-economic evidence doesn't matter at all when you have an ideological obsession with neoliberal pseudo-economics. It is an article of faith in free market dogma that the size of the state should be diminished and state spending should be cut, so facts and analysis just don't come into Osborne's calculations. He will attack state spending, no matter what the socio-economic consequences, since his economic policies are based upon ideology rather than evidence.

2. Priming for privatisation: Another sacrament of the orthodox neoliberal doctrine is privatisation. To ideologically driven free-market fundamentalists like George Osborne, the necessity to privatise is an unquestionable aspect of their faith. The slashing of wages and the trashing of labour rights in the public sector can be seen as sacrificial enticements to the private sector Gods. The right-wing government can do the "dirty work" of cutting labour costs and eliminating labour rights at the national level as a gift to the private sector. Once this has been achieved the public sector services and industries can then be flogged off on the cheap or simply just given away for free (as Osborne's colleague Michael Gove has done with almost 2,000 secondary schools). Regional Pay can be seen as an attempt to break national pay bargaining in order to make it significantly easier for the beneficiaries of future privatisations to slash wages to boost corporate profits or to lay off workforces in order to asset strip their acquisitions.

3. Political tribalism: It is absolutely no coincidence that the vast majority of poor areas that will be facing public sector wage cuts happen to be Labour voting areas. Essentially, Osborne has found a way of attacking local public services in poor Labour voting areas, whilst maintaining, or even improving public service provision in wealthy Tory voting areas (via the brain-drain effect). This policy can, and should be seen as Osborne's way of rewarding Tory areas with better services, whilst punishing Labour voting areas with severe pay cuts and declining standards.

4. The social mobility war: Despite all of the hot air about "promoting social mobility" coming from the Liberal Democrat members of the government, it is quite clear from coalition economic policies that what is actually going on is a concerted war against social mobility. There is no clearer example of this than the tripling of tuition fees and the recalculation of interest repayments on student loans from simply tracking interest rates to the new measure that ensures a large inflation plus three percent profit for the lenders. The objective of course is to ensure that the children of the establishment get yet another huge life advantage over their peers from ordinary backgrounds. Wealthy parents can ensure their children avoid the fees and the 9% "aspiration tax" by paying the fees up front, whilst the children of the ordinary face massive deductions from what should be their disposable income, a situation that will last most of their working lives if they fail to find a job that pays significantly more than £45,000 a year. Attacking pay and standards in local services for less wealthy areas can be seen as just another Tory campaign in the social mobility war to ensure that the wealthy always get the best advantages in life.

In conclusion, Osborne's stated justification for Regional Pay has been comprehensively undermined, however "crowding out" was only ever a buzzword based on textbook neoliberal gibberish used solely to obscure his real intentions anyway. Having the weight of evidence against him didn't stop him from implementing his ideologically driven "cut now think later" indiscriminate austerity policies and it won't stop him from pushing Regional Pay.

To those that can read between the lines of Tory "Newspeak", the real reasons for pushing Regional Pay are simple. Regional Pay is a policy that is compatible with their beloved pseudo-economic dogma, one that can be seen as a primer to the privatisation of local services. As a political bonus Regional Pay also allows them to attack pay and public services in Labour voting areas whilst safeguarding wages and public service provision in Tory areas, which is essentially a part of their divisive brand of class warfare. Regional Pay is yet another Tory policy aimed at preventing people from ordinary backgrounds from providing an economic challenge to the establishment elite by directly reducing their disposable income and trashing their local services.

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