Appendix B
National Pay Determination in the NHS: Resilience and Continuity
Ian Kessler
Reader in Employment Relations at the Saїd Business School and Fellow at Green
Templeton College, University of Oxford
Executive Summary
Introduction
The national determination of pay in British public services has been remarkably resilient. This resilience
is especially noteworthy given government attempts over the years to re-structure the public sector,
often accompanied by calls to introduce local wage setting machinery. Since the 2010 election, critiques
of national pay determination in the public sector have re-surfaced and intensified. These critiques have
been characterised by a number of overlapping shortcomings:

A reluctance to explore why the national determination of pay in public services has been so
resilient

A failure to fully consider the different purposes associated with and the range of actors
involved in public services pay determination

A reluctance to interrogate alternative approaches to national pay determination, in particular
their potential limitations and relative costs
This paper explores the resilience of national pay determination in the public sector: how it has been
sensitive to and reflected the public sector; how it has addressed diverse stakeholder interests, and how
it has retained the capacity to do so, particularly relative to alternative approaches. The paper considers
such issues with reference to the longstanding model of national pay determination in the NHS.
1|Page
Appendix B
The paper is divided into three main parts:

Patterns of pay determination: What trends are apparent in the arrangements for pay
determination across the British public and private sectors?

National pay determination: What explains the adoption of national approaches to pay
determination in general terms, and particularly in public services?

NHS reorganisation and pay determination: How has pay determination in the NHS fared and
how will it cope given attempts to re-structure the provision of healthcare?
Pay Determination in the public and private sectors: An overview
There are some important differences in wage setting machinery in the main parts of British public
services. However, more striking are enduring similarities summarised as:
-
National: The institutions of pay determination are durable and deeply rooted in national
systems and procedures.
-
Joint: Pay determination is a joint process, engaging a range of stakeholders in discussion
and collective bargaining.
-
Flexible: National pay determination typically allows for local flexibility, not least to
accommodate particular local and occupational labour market conditions.
-
Distinctive: These features of pay determination distinguish the public sector from the
private sector where, over recent years, pay determination has become more decentralised
and less subject to collective agreement.
National Pay Determination and British Public Services
The Public Service Context
Critics of national pay determination in public services look at developments in the private sector and
ask – if the private sector has moved to more local pay determination, why haven’t public services? This
overlooks the longstanding differences in pay determination in the public and private sectors. The very
longevity of a distinctive, national model of pay determination in public services suggests the need for
care in drawing lessons from the private sector, and indeed point to key features which render national
wage setting as the most efficient and effective means of wage setting in a public service context.
2|Page
Appendix B
There are certain features of public services and their workforces that lend themselves to national pay
determination:
-
Multiple stakeholders: Public services comprise an unusually diverse set of actors. In
contrast to the private sector, a range of electorally accountable policy makers are involved
in public service pay determination, along with the ‘usual suspects’: employees, managers
and their representatives.
-
Political contingency: It follows that policy makers bring to the pay determination process
ideological values and beliefs, and are particularly sensitive to the presentation and political
consequences of pay outcomes.
-
Goal dispersion: The engagement of multiple stakeholders in pay determination results in a
range of diverse goals, while political contingency invests provides pay determination with a
novel set of aims. Stakeholders are sensitive to the different goals and trade-offs between
them, due to the signals this sends to the wider audience on both the system itself and its
outcome. Most obviously, affordability is closely linked to public policy on public
expenditure.
-
A professional workforce: The public sector workforce has distinctive characteristics. It is
diverse in terms of gender, ethnicity and disability. Within the NHS, it is also a highly
qualified workforce. A range of professional groups are regulated according to national
requirements and standards and are expected to deliver services to the same high standards
wherever in Britain they are employed.
This paper argues that the resilience and continuity of national pay determination, across the public
sector, and particularly in the NHS, can be related to these distinctive contextual features. A range of
actors with a stake in pay determination in public services, pursue a range of diverse objectives, Given
these factors, the pertinent issue is not the perceived shortcomings of a national model – but whether
an alternative locally based model is more or less likely to manage pay determination in a more efficient
and effective way.
3|Page
Appendix B
The public service context and the benefits of national pay determination
The main arguments for national rather than local pay determination in the public sector are
summarised as follows:
-
Discipline and Control
-
Cost Efficiency and Effectiveness
-
Transparency and Consistency
Discipline and Control
National wage setting disciplines employers in an industry or sector to provide standard terms and
conditions of employment. For the employee, standardisation is critical to the fairness of a pay system.
For the employer the discipline of national pay determination generates a number of benefits:
-
It limits employers from competing in pay terms with one another, so preventing a ‘race to
the bottom’ or ‘a race to the top’, the latter, in particular, leading to ‘leapfrogging’ and
inflated labour costs.
-
It reduces the negative externalities which arise from more disaggregated forms of pay
determination. Rather than seeking a quick-fix by reneging on any responsibility to train its
staff by poaching from others through higher pay rates, national pay determination forces
employers to seek more sustainable solutions through investing in its employees.
Commentators suggest that the discipline required by national wage setting introduces rigidities, seen
as problematic in a two senses:
-
Weakening pay sensitivity to local or regional labour market conditions, consequently
creating recruitment and retention difficulties;
-
Limiting the use of pay to support broader organisational change or competitiveness.
In the main, critiques of national pay determination in the public sector have concentrated on the
former issue, the irony being that moves towards more fragmented, single employer bargaining in the
private sector have often been driven by the latter.
Critiques of national pay determination in British public services have typically been predicated on the
view that standard pay rates result in the ‘misallocation’ of labour. However, calls for public sector pay
flexibility in response to local labour market conditions avoid consideration of what constitutes a
regional or local labour market, and indeed whether such labour markets might meaningfully form the
4|Page
Appendix B
basis for pay determination. In particular, regions rarely equate with well-defined labour markets: it is
more common to find isolated labour market ‘hot spots’ within them1.
i.
Cost Efficiency and Effectiveness
-
Pay bill costs. National, multi-employer pay determination is structurally predisposed
towards generating moderate pay increases, and indeed this has been borne out over the
years in the public sector. Over the last decade or so, settlements in the public sector have
been broadly in line with those in the private sector. Controlling for human capital, the
earnings of public services and public sector are also closely aligned.
-
Transaction costs. National pay determination has long been seen particularly by small and
medium sized employers as a way of minimising transaction costs, delegating to a central
agency or body responsibility for many of the associated activities and reaping economies of
scale and expertise.
-
Relational costs. National wage setting removes pay as a potential source of managementemployee conflict at the workplace level. National wage setting also protects against pay
increases becoming too closely tied to broader organisational change.
ii.
Transparency and consistency
In public services, the transparency and consistency of national pay determination
contributes to the promotion of employee motivation, equality and mobility. In terms of
motivation, the employment of the same occupational groups by public service providers
allows for ready and legitimate pay comparisons. Similarly, a shared configuration of
occupational roles in different parts of public services ensures the viability of a national job
evaluation scheme, which guarantees equal pay for work of equal value. Finally, a national
model of pay determination allows public service professionals, in particular, to move
readily between organisations, their skills and capabilities under-written by their registered
and regulated status.
1
Incomes Data Services (1997) Annual review of pay and employment practices part one: a survey of 137 NHS
trusts, Health Service Report
5|Page
Appendix B
Reviewing Wage Setting in the NHS
Developments
National Pay and the NHS Context
Since its inception in 1948, the NHS has had a national model of pay determination based on joint
regulation between the government/management and the trade unions. The adoption of such a model
is related to various factors, largely shared with other parts of the public sector:
-
National wage setting in the NHS supports a nationwide service, delivered, in the main, by a
nationally regulated workforce, and according to consistent standards of care delivery.
-
For some 35 years and governments of various hues, a national wage setting model based
on joint regulation has closely reflected and supported public policy.
-
National pay determination has been seen as the most efficient and effective means of
addressing the diverse pay objectives held by a variety of stakeholders.
The durability of national pay determination in the early to mid 1990s was particularly striking. During
this period the government actively sought to encourage local pay determination at trust level, while
the resistance to this process by various actors highlighted the value of a national model in the NHS and
the challenges faced in moving to Trust wage setting arrangements.
Local Pay in the 1990s
Government encouragement of local pay determination in the 1990s took two forms: the sanctioning of
a new local healthcare assistant grade, despite an existing Whitley nurse auxiliary grade; and
encouragement of local bargaining to develop pay and conditions at Trust level. Research at the time
confirmed the faltering and limited progress made on these two initiatives, highlighting the following
barriers to local pay determination:
Mixed messages: Despite an increasingly assertive government approach to local pay determination,
trusts were confronted with mixed messages from national policy on the development of local pay
determination.
Pay bill costs: One of the clearest illustrations of mixed messages lies with the government’s
encouragement of local pay determination at a time when it was also seeking to constrain public
expenditure and pay bill costs.
6|Page
Appendix B
Mixed arrangement: The decentralisation of pay determination proved to be a ‘messy’ process, local
Trust arrangements co-existing with residual, alternative forms of wage setting.
Relational costs: Moves to local pay generated considerable disquiet among employees, reflected in
trade union opposition.
Transaction costs: Local pay determination generated high transaction costs, inflated by doubts about
local management’s capacity to deliver on such arrangements.
Other priorities and means: At a time of major organisational change, with the establishment of an
internal market for healthcare, trusts had more pressing concerns than those associated with local pay
determination. Indeed, trusts felt that there were more efficient and effective levers for managing
change, and in particular for controlling pay bill costs, than developing a local approach to pay
determination.
The Current Arrangements for Pay Determination
The current national arrangement for pay determination based on NHS Pay Review Body
recommendations and Agenda for Change ensure:
-
Discipline and control: The NHS Pay Review Body process allows central government some
control over pay settlements. In combination with the infrastructure established by Agenda
for Change, a ‘level playing field’ is set for pay conditions which prevents a ‘race to the
bottom’ or indeed ‘the top’.
-
Cost efficiency and effectiveness: These arrangements have provided relatively modest and
affordable settlements, minimising the transaction costs expended by trusts, and removing
pay as a source of conflict in trusts’ relations with employees and their representatives.
-
Transparency and consistency: The consistency inherent in these arrangements has
contributed to the perceived fairness of the pay system, crucial in stimulating employee
motivation. In ensuring the pay structure is equality-proof, the arrangements have also
promoted a sense of fairness, but more tangibly also ensured equal pay for work of equal
value. Moreover the transparency and consistency of the arrangements have facilitated
staff mobility across the NHS.
However, some caution is needed in assuming that the current, national wage setting arrangements
have fully met these goals and expectations, not least given the paucity of research on the agreement’s
7|Page
Appendix B
implementation and impact. However, available studies present a fairly consistent picture. Agenda for
Change has been welcomed by stakeholders as an improvement on the previous fragmented and
complex national arrangements, and is seen as providing a firm basis for taking forward important
substantive issues, particularly equal pay and new ways of working. Commentators and practitioners
have raised residual implementation concerns, particularly the time taken to embed the Knowledge and
Skills Framework, but this does not detract from the perceived overall value of Agenda for Change.
The Future of Pay Determination in the NHS
While the Health and Social Care Bill applies only to England, the implications for national pay
determination across the UK are significant. The future NHS in England is likely to be characterised by
three features:
-
Accelerated fragmentation
-
Mixed provision
-
Financial constraint
Fragmentation. Future reforms aspire to achieve plurality of provision of NHS services. As part of this,
the powers of autonomous Foundation Trusts to set terms and conditions as well as greater discretion
for planning and developing their workforces will accelerate.2 Such change has led to renewed calls for
local pay determination. These calls have, however, been accompanied by a silence from the
government on how the decentralisation of pay might affect its proposals for workforce development
and planning.
Mixed provision. The mixed provision of services is likely to be reflected not only in the delivery of
healthcare by organisations from different parts of the economy – the public, private and independent
sectors - but in new types of organisation, in particular, social enterprises. This mix is likely to encourage
a wider distribution of providers in terms of size and complexity.
The spinning off of social enterprises and the more general provision of healthcare from the private and
independent sectors can also be seen as a continuation of the outsourcing of service provision over a
2
Department of Health (2010) Liberating the NHS: Developing the Healthcare Workforce, London: DH
8|Page
Appendix B
number of years - with familiar consequences for pay. In the context of the commissioning of healthcare
services, much will depend upon whether competition goes forward on the basis of price.
Financial constraint. This paper draws attention to the cost efficiency and effectiveness associated with
a national system of pay determination, and by implication the high costs trusts would face both in
moving to and sustaining a local wage setting model. In the current of context financial constraint, is
this the right time to incur the high costs associated with moves to local pay determination? Moreover,
in a labour intensive sector such as the NHS, the relational costs associated with such a move are also
likely to be high. Given the current upheavals being experienced by NHS staff, how might they respond
to such a fundamental change in their employment terms and how might any resultant demoralisation
feed through to the quality of healthcare provision?
Summary and Conclusions
This paper has argued that the resilience and continuity of national pay determination in the public
sector lie in its sensitivity to the sector’s contextual features and to its efficiency and effectiveness in
dealing with the diverse goals held by multiple stakeholders. This has been achieved by a national wage
setting model with the capacity to generate and sustain: discipline and control; cost efficiency and
effectiveness; and transparency and consistency
The paper has applied this line of argument to an understanding of the past and future development of
national pay determination in the NHS. The resilience of national wage setting in the NHS in the face of
various pressures is presented as a testament to its sensitivity to context, and to its capacity to manage
diverse pay objectives. This was particularly striking in the 1990s when public policy attempts to
encourage trust based bargaining made limited headway, highlighting some of the barriers to and
dangers inherent in moves to local pay determination. Given new and current pressures, the paper also
raises the need for careful consideration of the costs and benefits associated with national pay
determination, relative to more decentralised arrangements, particularly in a period of financial
constraint. Greater local pay determination might well have major transactional, relational and pay bill
costs, outweighing any immediate gains arising from any such move.
The paper has not sought to conceal any shortcomings of national pay determination in public services,
and more particularly in the NHS, relative to a more decentralised approach. It does, however, assert
that given the diverse range of objectives held by different stakeholders in a sector with distinctive
9|Page
Appendix B
features, national pay determination provides a firm basis for the complex of task of managing the
healthcare workforce in times significant organisational change and uncertainty. As pressures on
national pay determination mount, those considering local alternatives to national pay determination
might usefully be guided by the adage ‘be careful what you wish for’.
10 | P a g e
Appendix B
National Pay Determination in the NHS: Resilience and Continuity
1 Introduction
The national determination of pay in British public services has been remarkably resilient. In the civil
service, national machinery was introduced in 1919 as a direct response to the Whitley Report published
a few years before3 while in healthcare, national Whitley systems were set-up at the inception of the
NHS in 1948,4 becoming established in local government at around the same time.5 These mechanisms
have been subject to considerable substantive, procedural and institutional change over the years, but
in most parts of public services national forms of wage setting have continued and remained central to
the regulation of the effort-reward bargain.
The resilience of national pay determination in public services is especially noteworthy given recent
attempts by governments of different party political complexions to re-structure or ‘modernise’ public
services. In the 1980s and early 1990s, Conservative governments introduced competitive forces into
the public sector, encouraging the fragmentation of service delivery with associated attempts to devolve
pay determination. The period of New Labour government was characterised by more integrative forms
of service provision, underpinned by its brokerage of national agreements on pay and conditions in
different parts of public services, for example the Workload Agreement 2003, in primary and secondary
education, and Agenda for Change in the NHS 2004. However, there was always a tension between New
Labour’s ‘joined-up’ approach to government and its pursuit of a ‘choice agenda’ rooted in the
continued encouragement of quasi-independent, sometimes competing, providers such as NHS
Foundation Trusts and school academies, with discretion to determine employee pay.6 Since the last
election in 2010, the pressure on national pay determination has re-surfaced and intensified, as the
Conservative-led Coalition government has accelerated the pursuit of user ‘choice’ and ‘voice’ through
3
Parris H (1973) Staff relations in the Civil Service: Fifty years of Whitleyism. London
Seifert R (1992) Industrial relations in the NHS, London: Chapman Hall
5
Kessler I (1989) Bargaining strategies in local government in Mailly R and Dimmock S (eds) Industrial Relations in
the Public Services, London: Routledge
6
Bach S and Kessler I (2011 forthcoming) The Modernisation of Employee Relations: Targeted Change, Basingstoke:
Palgrave
4
11 | P a g e
Appendix B
a further, more extended roll-out of quasi-independent service providers – Foundation Trusts, school
academies and now free schools and local social enterprises.7
These more immediate and recent pressures following on from the last election have encouraged
various commentators, some policy makers and management practitioners to revive their longstanding
critique of national pay determination in public services. These critiques have varied in form, ranging
from generalised polemic pieces funded by (‘right leaning’) think tanks8,9 to more focused studies,
modelling, on the basis of certain, perhaps questionable, assumptions and testing the relationship
between national pay and certain labour market and services outcomes.10 Typically, however, these
critiques have been characterised by a number of overlapping shortcomings or limitations:

Critics have been reluctant to explore why the national determination of pay in public services
has been so resilient. Such resilience suggests that there might well be structural and
operational features of public services, which lend themselves to national wage setting as the
most efficient and effective way of determining pay.

The different purposes associated with and the range of actors involved in public sector pay
determination has been understated. As a consequence, the complex trade-off between diverse
actor goals linked to equity, social cohesion, service standards and quality, affordability,
recruitment, retention and motivation, achieved by national pay determination in the sector has
been overlooked.

Critiques of national pay determination in public services have down-played consideration of
alternative approaches and their potential shortcomings. Given the varied, sometimes
competing, objectives and stakeholders involved, any approach to pay determination will have
to make trade-offs, dealing with some issues more efficiently and effectively than others. In such
circumstances, it is pertinent to ask whether an alternative, locally based approach to pay
determination is any better able to achieve these delicate and complex trade-offs. The faults of
a system in operation are often all too apparent, while future, notional approaches are just as
easily, and dangerously, idealised.
7
Bach S (2011) A new era of public service employment relations? The challenges ahead, Acas future of workplace
relations discussion paper series, Discussion Paper 1. London: Acas
8
Harding R (2007) Poverty Pay: How Public Sector Pay Failed Deprived Areas, London: Social Market Foundation
9
Wolf A (2011) More than we bargained for, London: Centre Forum
10
Hall E, Propper C and Van Reenen J (2008) Can Pay Regulation Kill? Panel Data evidence on the effect of labour
markers on hospital performance, Journal of Political Economy, 118: 2, 222-73
12 | P a g e
Appendix B
In general, this paper explores the resilience of national pay determination in public services: how it
has addressed diverse stakeholder interests, and, how it has retained the capacity to do so,
particularly relative to alternative approaches. More specifically the paper considers such issues
with reference to the longstanding model of national pay determination in the NHS. Still covering
the four countries of the United Kingdom – England, Northern Ireland, Scotland and Wales – in
recent years this model of national pay determination has been subject to important changes. The
remit of the NHS Pay Review Body has been gradually extended, now making recommendations on
pay awards for all NHS workers with the exception of doctors, dentists and some very senior
managers. These awards are underpinned by Agenda for Change, effective from 2004, with its
streamlined banded pay structure, founded upon a comprehensive, national job evaluation scheme
and a system of performance management – the Knowledge and Skills Framework – along with
other terms and conditions, inter alia premium payments to address regional and/or occupational
recruitment and retention difficulties. As suggested, this national approach to pay determination in
the NHS faces renewed challenge from various sources: the permissive nature of the 2011 Health
and Social Care Bill, which allows contracts between purchaser consortia and providers to depart
from national pay and conditions; the assumed acquisition of Foundation status by all NHS trusts
with discretion to determine pay and conditions; and the ‘right to provide’ encouraging services
provision from social enterprises and other providers, potentially beyond national NHS national
agreements and systems.
Against such a backdrop the paper is divided into three main parts, addressing the following issues:

Patterns of pay determination: What trends are apparent in the arrangements for pay
determination across the British public and private sectors? This part establishes the distinctive
form assumed by pay determination in public services, with an emphasis on the ongoing use of
national wage setting machinery.

National pay determination: What explains the adoption of national approaches to pay
determination in general terms but particularly in public services? This part explores the costs
and benefits of different forms of pay determination, and, especially national pay
determination.

NHS reorganisation and pay determination: How has national pay determination in the NHS
fared and how is it likely to cope given ongoing attempts to re-structure the provision of
13 | P a g e
Appendix B
healthcare? This part assesses the development and performance of national pay determination
in the NHS:
-
In the face of public policy pressure in the 1990s
-
In the wake of the Agenda for Change agreement
-
In the context of present changes in healthcare delivery
2. Pay Determination in the public and private sectors: An overview
Approaches to pay determination differ within and between countries. These differences of approach
are distinguishable along a number of dimensions:
-
Actors: Those involved in pay determination – employer and employee representatives as
well as third parties such as the state or advisory bodies.
-
Processes: The approaches to pay decision making – through unilateral state or employer
action, or on the basis of consultation, negotiation or statutory enforcement.
-
Levels: Where these processes are enacted – whether at national, industry and or local
levels.
-
Coverage: The proportion or number of employers and workers who are party to and
undertake to be bound by a pay agreement or arrangement.
These dimensions are often related. For example, the level of pay determination has important
implications for the coverage of an approach: thus, pay determination at industry level is sometimes
inclusive, covering all organisations and their employees within the sector. This is particularly the case
in certain continental European countries, where statutory extension clauses ensure that any agreement
reached at industry level covers employers and their workforce whether or not they are a formal party
to the original agreement. This can produce an apparent disconnect between union density and the
coverage of collective agreements: where there is an extension clause, low union membership can often
sit alongside the high coverage of collective agreements.11
Using the different dimensions of pay determination, there are some important differences in wage
setting machinery in the main parts of British public services. As we have seen, in the NHS, pay increases
are associated with pay review body recommendations, combined with ongoing negotiation centred on
11
European Foundation for the Improvement of Living and Working Conditions (2007) Industrial Relations in the
Public Sector, Dublin
14 | P a g e
Appendix B
the pay structure underpinning Agenda for Change through the NHS Staff Council. Similarly, teachers’
pay increases are based on recommendations from a teachers’ pay review body, complemented by
negotiations on workload as instituted by the Workload Agreement. In local government, pay and
conditions have mainly been set by national bargaining, covering over 350 local authorities of different
types, and currently codified in the Green Book or Single Status agreement. The civil service is the only
part of the public sector which has a more fragmented form of national pay bargaining, the devolution
of pay determination emerging with the establishment of executive agencies in the late 1990s.12
However, pay in these agencies, particularly those with a network of local outlets, for example Jobcentre
Plus or the Passport Office, remains nationally determined, with a single agreement covering all such
outlets.13
While acknowledging these differences in wage setting machinery in various parts of British public
services, more striking are enduring similarities which can be summarised in the following terms:
-
National: The institutions of pay determination have been durable and deeply rooted in
national systems and procedures. In short, pay determination, in the main has remained at
the national level, and consequently most employees and employers have been covered by
agreements and asscoiated practices.
-
Joint: Pay determination has been a joint process, engaging a range of stakeholders –
employees, employers and their representatives, along with government and other third
parties, such as pay review bodies – in discussion and collective bargaining.
-
Flexible: National pay determination has typically allowed for some local flexibility, not least
to accommodate anomalous local and occupational labour market conditions.
-
Distinctive: These features of pay determination distinguish public services from the private
sector where over recent years pay determination has become more decentralised and less
subject to collective agreement.
12
Kessler I, Heron P and Gagnon S (2006) The fragmentation of pay determination in the British civil service: a
union member perspective, Personnel Review, 35(1): 6-28
13
The UK is unusual among EU countries in having this form of fragmented bargaining. A review of industrial
relations in the public sector across most EU countries, conducted by the European Foundation for the
Improvement of Living and Working Conditions, revealed that many EU countries, including France and Germany,
had centralised barging for civil servants, while a number of others including Italy and Spain used forms of pay coordination for their civil servants.
15 | P a g e
Appendix B
Data from Workplace Employee Relations Surveys (WERS) highlight and confirm this overview of pay
determination in the public and private sectors. Table 1 below presents collective bargaining coverage
by workplace and employees as revealed by four WERS surveys over a twenty year period, 1984-2004.
The predominance of national pay determination in the public sector is reflected in the high coverage of
bargaining over the years, the tenure of national agreements embracing most workplaces and
employees. Thus, in 2004 around 80% of workplaces and employees were covered by some form of
collective bargaining, clearly reflecting the tenure of national agreements. It can be seen that this is in
stark contrast to the private sector where collective bargaining coverage and multi employer bargaining
have collapsed over the period: in 2004 only a quarter of employees and a lower proportion of
workplaces were covered by collective bargaining. Certainly there was a slight fall in employee coverage
across the public sector after 1984, but this was largely accounted for by the extension PRB coverage
rather than the decentralisation of bargaining.
Table 1: Workplace and employees with some collective bargaining, 1984-2004
Workplaces with any collective bargaining
Employees in workplaces with any collective
bargaining
Public
1984
1990
1998
2004
1984
1990
1998
2004
99
86
84
82
95
78
67
79
47
38
24
16
52
41
32
25
sector
Private
sector
Source: Brown et al, 200814
Table 2 below highlights how pay determination remains a largely joint process. Pay determination
based solely on methods other than collective bargaining – such as unilateral management discretion –
is rare in the public sector. Again this picture is very different to that in the private sector where
managerial decision making whether at higher or workplace levels, is now the sole means of pay
determination in most workplaces. Indeed, for a significant proportion of public sector workplaces, close
to a half (41%) in 2004, compared to under a quarter in the private sector (23%), mixed methods are
used to determine pay, likely a combination of collective bargaining and pay review body
recommendations.
14
Brown W, Bryson A and Forth J (2008) Competition and the Retreat from Collective Bargaining, NIESR Discussion
paper No. 318, London: NIESR
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Appendix B
Table 2: Pay Determination methods (workplaces) by sector, 1998 and 2004
% Workplaces
1998
2004
Public Sector
Private sector
Public sector
Private sector
Only multi employer
28
2
36
1
Only single employer
19
4
12
4
Only workplace level
0
1
1
1
Only set by mgt higher level
9
24
7
23
Only set by management,
1
32
1
43
0
6
0
5
-
-
1
0
iii) Mixture of Methods
39
28
41
23
All methods
100
100
100
100
Any CB
79
17
77
11
Any set by mgt
21
81
28
79
Any individual negotiations
1
16
2
15
Any other methods
39
8
32
2
PRB
-
-
32
0
i)Single methods of collective
bargaining:
ii) Single other method:
workplace
Only set by individual
negotiations
Only other methods (Pay
Review Bodies
Source: Kersely et al, 200615
In summary, it is clear that national pay determination has continued to characterise British public
services, reflected not least in the extensive coverage of collective bargaining, the importance of PRB
arrangements and the continued presence of forms of multi-employer bargaining. In the next section
consideration is given to the reasons for the emergence and durability of national forms of pay
determination, particularly in public services, focusing especially on the relative benefits and cost of this
form of wage setting.
15
Kersely B, Carmen SA, Forth J, Bryson A, Bewley H, Dix G and Oxenbridge, S (2006) Inside the Workplace:
Findings from the 2004 Workplace Employment Relations Survey, London: Routledge
17 | P a g e
Appendix B
3. National Pay Determination and British Public Services
3.1 The Public Service Context
The nature of pay determination in British public services, with its continuing emphasis on the national,
multi-employer joint regulation, in marked contrast to practices in the private sector, begs a number of
questions. These relate to the distinctiveness and durability of British public services model of pay
determination. Critics of this model have often looked askance at developments in the private sector,
with increasingly decentralised forms of pay determination, and queried the distinctiveness of the public
service approach: if the private sector has moved to more local pay determination, why haven’t public
services followed a similar path? It is, however, a question which overlooks the longstanding character
of private-public sector differences: as the WERS data reveal, while the sector contrast has certainly
deepened over the years, it was marked from the outset of the data series. Moreover to suggest that
private sector trends have lessons for public services, assumes that these trends, and their meaning, are
being correctly interpreted and that they have relevance for public services. The very longevity of a
distinctive, national model pay determination in public services suggests the need for care in drawing
lessons from the private sector, and indeed points to national wage setting as the most efficient and
effective means of wage setting in a public service context.
The fit between the public service context and a national approach to pay determination reside in
contextual features which distinguish it from the private sector. In general terms, a number of
researchers and commentators have suggested that the public domain is distinctive from the private,
being characterised by a particular set of irreducible values, principles and assumptions.16 and 17 For
example, in the public domain exchange relations are not structured or assessed solely according
economic and market criteria, and are subject to transparency and intense forms of accountability. In
more specific, industrial relations terms Bach and Winchester have argued that there are features of
public service employment which mitigate against the development of local pay determination: the
political sensitivity of public services; the questionable viability of some public service organisations as
potential pay bargaining units given their limited size and complexity; and the continuation of strong
occupational identities and labour markets.18 Public policy choices remain, for instance, on the scale and
16
Ranson S and Stewart J (1994) Management in the public domain: Enabling the learning society, Basingstoke:
Palgrave
17
Marquand D (2004) The decline of the public; The hollowing out of citizenship, Cambridge: Polity Press
18
Bach S and Winchester D (1994) Opting out of pay devolution? The prospects of local pay bargaining in UK public
services, British Journal of Industrial Relations 32:2, 263-82
18 | P a g e
Appendix B
coverage of the public domain, and on the design of the public sector workforce and provider units.
Nonetheless, there are still strong grounds for asserting that public services and their workforces retain
features which lend themselves to national pay determination. These features can be summarised as
follows:
-
Multiple stakeholders: Public services comprise an unusually diverse set of actors. As
Avinash Dixit, professor of economics at Princeton University in the USA, has noted:
Public sector agencies have some special features, most notably a multiplicity of
dimensions- of tasks, of stakeholders and their often conflicting interests about the ends
and the means, and of the tiers of management and front line workers Sometimes
these special characteristics explain why these agencies are in the public sector in the
first place. They also make inappropriate the naive application of magic bullet solutions
like competition and performance-based incentives.19
More specifically and in contrast to the private sector, a range of electorally accountable
policy makers will be interested and involved in public services pay determination, along
with the ‘usual suspects’: employees, managers and their representatives.
-
Political contingency: It follows that pay determination in public services will be
underpinned by a significant degree of political contingency.20 In other words, policy makers
will bring to the process ideological values and beliefs, and will be particularly sensitive to
the presentation and broader political consequences of pay outcomes.
-
Goal dispersion: The engagement of multiple stakeholders in the pay determination process
also informs the process, with a range of diverse of goals likely to be ‘in play’. Any system of
pay determination, whether in the private or public sector, at national or organisational
level, seeks to address a number of objectives, often complementing one another but
sometimes in tension. There will be a general public policy interest in how wage setting
machinery as it operates in different industries impacts on economic outcomes: levels of
inflation and (un)employment.21 But there will also be a public policy concern for its wider
19
Dixit A (2002) Incentives and Organization in the Public Sector: An Interpretive Review, Journal of Human
Resources, 37: 4, 696-727
20
Ferner A (1998) Government, Managers and Industrial Relations, Oxford: Blackwell
21
Over the years there has been considerable interest in particularly within the OECD, on the relationship between
the structure of collective bargaining + typically defined in terms of bargaining coverage, the use of extension
19 | P a g e
Appendix B
social and political consequences. The preoccupation of public policy makers with a variety
of pay setting goals was recently and somewhat belatedly acknowledged by the OECD. A
narrow concern with macroeconomic outcomes prompted the OECD to call for greater pay
flexibility, a call stubbornly resisted by member countries seeking to pursue a wider range of
aims. As the OECD noted:
‘Concerns of equity and social cohesion appear to have been an important explanation
for this reluctance (to adopt pay flexibility)… Across OECD countries, high wage
dispersion is associated with a higher incidence of low pay employment and greater
persistence of low pay.’22
In more specific terms, pay determination in any context pursues and trades off a range of
objectives. The most commonly cited aims of pay determination are to recruit, retain and
motivate, but other goals associate with affordability, financial control, fairness, including
equity, and flexibility, are also important.
In public services, the pursuit of various aims assumes a distinctive and particularly complex
form. As suggested, political contingency is likely to invest pay determination with a novel set of
aims, and a marked diversity in the pay goals pursued. Moreover within public services
stakeholders will devote unusual degree of attention to the emphasis placed on different pay
goals and trade-offs between them, given the wider signals it sends to wider audiences on pay
systems and outcomes.
clauses, the degree of centralisation or co-ordination- and such macro-economic outcomes as inflation,
unemployment, earnings growth and pay dispersion. It is an interest which derives from early findings which
suggested that highly centralised or highly decentralised forms of pay determination were associated with more
positive macro-economic outcomes than hybrid forms of pay determination. However more recent research with
a longer time frame has cast doubt on such a clear link between bargaining structure and these outcomes. The
most comprehensive piece of research, undertaken by the OECD, has questioned any clear and obvious link
between bargaining structure and these outcomes. Categorising OECD countries, including the UK, according to
whether they are high, intermediate or low in terms of bargaining centralisation, the relationship with various
outcomes- unemployment/employment rates, inflation rate and earnings growth, over the last forty years has
been revealed as unstable and weak. As the OECD concludes:
‘The overall impression that emerges from these comparisons is that partitioning countries according to
centralisation/co-ordination, on its own, is not very informative for predicting aggregate economic
performance.’
22
OECD (2004) Employment Outlook, Paris: OECD
20 | P a g e
Appendix B
In addition, the nature of public service provision is likely to affect the pursuit of these pay aims.
For example, the issue of affordability in pay determination is closely linked to public policy on
public expenditure rather than to the profitability of the organisation. Similarly, given the need
for accountability, the financial control of pay determination becomes especially important in
the public sector, reflected not least in the need to provide taxpayers with a plausible rationale
for pay increases awarded to public service employee.
A professional workforce: The public sector workforce is responsible for delivering publicly
funded national services, in the main free at the point delivery, to the most vulnerable members
of the community – the sick, the young, the elderly, the deprived and the marginalised. As a
consequence, this workforce has acquired distinctive characteristics. It is diverse in terms of
gender, ethnicity and disability. It is also a highly qualified workforce. This is particularly
reflected in the fact that almost half (44%) of the public sector workforce has at least one
degree or were at NVQ level 5, compared with barely a quarter (24%) in the private sector.23
Equally striking, it is a highly professionalised: in 2009, out of a total workforce of 1.3 million
there were some 140,000 doctors, around 417,000 registered nurses, midwives and health
visitors, and over 150,000 qualified scientific, therapeutic and technical staff24; in primary and
secondary education there were some 420,000 qualified teachers; while there were 50,000
social workers in local government. These professional groups are regulated according to
national requirements and standards, and, along with other public service workers, are
expected to deliver service to the same consistently high standards wherever in Britain they are
employed.
This paper argues that the resilience and continuity of national pay determination, across the public
sector, and particularly in the NHS, can be related to these distinctive contextual features. Given the
range of actors with a stake in pay determination in public services, pursuing a range of diverse
objectives , the pertinent questions revolve not so much around whether there are shortcomings in how
a model of national pay determination addresses particular objectives but how well such a model
balances the pursuit of often competing objectives, and whether an alternative, locally based model is
23
Audit Commission (2002) Recruitment and Retention: A Public Service Workforce for the Twenty-first Century,
London: Audit Commission
24
NHS Information Centre (2010). NHS Hospitals and Community Health Series, Non medical workforce census,
England, September 2009, London: NHS Information Centre
21 | P a g e
Appendix B
likely or not to forward such a complex configuration of aims in a more efficient and effective way. In
the next part of this section attention turns to the costs and benefits of national pay determination, and
how in the particular context of British public services, such an approach provides a viable means of
setting wages.
3.2 The public service context and the benefits of national pay determination
The main arguments for national rather than local pay determination in public services are succinctly set
out by Ed Sweeney, Chairman of Acas.25 Although he is referring mainly to national wage setting in local
government, the arguments presented have resonance throughout public services, and are therefore
worth quoting at length:
If you look at those parts of the economy that have moved from national to local bargaining, which
are the only real options here, over a period of time it has not worked very effectively. National
bargaining pays considerable dividends to the employers and the employees and to the people who
pay their taxes at local level. It produces the right result in most cases; it provides a mature system.
It provides an enormous amount of discipline. It is cost effective. If you disrupt national bargaining,
the chances are, in times of real strong pressure on finance, it will cost more. It will also cause
significant difficulties at local level. Trade unions are opportunistic. If they find out there are
differences in pay at local level between one job that compares directly to another job in another
local government organisation, they are bound to seek to exploit that and the complication is that
you duplicate in every local authority actual systems of management, system of organisation and
systems for dealing with human relations. Much better to have it centralised, much better to have it
codified, better also that people understand the process.
These views are echoed by Jan Parkinson, Managing Director of Local Government Employers26
particularly noteworthy in being voiced by the leader of the employer side, and in a sub sector where
there has been a history of pressure on this national model some local authorities for greater pay
flexibility (see below):
There are real benefits to local councils being part of a national framework where we can deal with
some of the difficult issues like pay and conditions of employment and that helps us get good
relationships with the national trade unions. There are many benefits to national collective
25
26
www.youtube.com/watch?v=J6IQ7A0i9oc
www.youtube.com/watch?v=J6IQ7A0i9oc
22 | P a g e
Appendix B
bargaining. There are economies of scale for one. There is consistency which is the second one. A
third one is that we always deliver lower pay deals to the opted out councils. Finally we provide a
voice for the sector on workforce issues.
The comments from Ed Sweeney and Jan Parkinson setting out the basic benefits of a national wage
setting model, can be bundled and summarised as follows:
-
Discipline and Control
-
Cost Efficiency and Effectiveness
-
Transparency and Consistency
Each set of benefits is considered in turn.
3.2.1 Discipline and Control
By definition, national wage setting disciplines employers in an industry or sector to provide standard
terms and conditions of employment. There is considerable mutual employee and employer gain from
such discipline. For the employee, standardisation is critical to the fairness of a pay system.
Unsurprisingly, research has consistently revealed much lower pay dispersion where bargaining is
centralised rather than decentralised, with clear implications for pay (in)equalities within a given
workforce.27 and 28
For the employer the discipline of national pay determination generates a number of benefits. Most
obviously, national pay rates and awards limit employers from competing in pay terms with one
another, so preventing a ‘race to the bottom’ or ‘a race to the top’. In a ‘race to the bottom’ employers
might, where local labour market conditions permit, under-cut one another in pay terms, raising issues
of employer social responsibility, in public policy terms sometimes necessitating a state subsidy of
employers, whose low wages need to be topped up by benefits. In a ‘race to the top’, the absence of
national pay rates might force employers into a bidding process for labour, particularly in tight labour
markets, which pushes up labour costs.29 For the employers there is a danger that, as Ed Sweeney notes,
unions might leverage such differential rates to argue for a higher standard rate. This is a particular
27
Blau F and Kahn L (1996) International differences in male wage inequality: institutions versus market forces,
Journal of Political Economy, 104: 791-837
28
Gospel H and Drucker J (1998) The survival of national bargaining in the electrical contracting industry: a deviant
case, British Journal of Industrial Relations, 36:2, 249-67
29
Traxler F (2003) Bargaining (de)centralisation, Macro economic performance and control over the employment
relations, British Journal of Industrial Relations 41:1, 1-27
23 | P a g e
Appendix B
‘danger’ in a national service where similar jobs are being performed nationwide. Indeed, trade unions
might even push for successively higher rates, playing employers off against one another, in a
‘leapfrogging’ process.
Less obvious but still a crucial employer benefit, the discipline imposed on employers by national wage
setting reduces the negative externalities which arise from more disaggregated forms of pay
determination. An externality is the effect of a decision made by one actor on others who are not
involved in that decision and whose interests are not taken into account. Single employer pay
determination provides an opportunity for organisations to buy-in rather than develop their own skills
and capabilities, in effect poaching through offering higher pay rates. This has detrimental consequences
for the employer who has paid for and developed the poached employee. It also has broader public
policy implications as organisations become reluctant to risk investing in the training of their staff, so
depleting national or industry workforce capacity. In these circumstances national pay determination
can be seen as what the German sociologist Wolfgang Streeck labels as a ‘beneficial constraint’.30 Rather
than seeking a quick-fix by reneging on any responsibility to train its staff by poaching from others
through higher pay rates, an employer is forced to seek more sustainable solutions through investing in
its employees. Streeck views the beneficial constraint of national industry bargaining as contributing to
Germany’s post-war economic success, and indeed these wider public policy benefits help explain why
in many continental European countries statutory extension clauses have been used.
Further disciplinary benefits are derived from the inherent ability to conclude the annual pay process
within an expected timeframe, rather than lengthy negotiations. Where this happens in other sectors of
the economy, this can lead to awards being stretched over pay year thresholds meaning that backpay
calculations are often necessary.
With varying degrees of explicitness, commentators have suggested that the discipline required by
national wage setting introduces rigidities, seen as problematic in a two senses:
-
Weakening pay sensitivity to local or regional labour market conditions, consequently
creating recruitment and retention difficulties;
-
Limiting the use of pay to support broader organisational change or competitiveness.
30
Streeck W (1997) Beneficial constraints: On the economic limits of rational voluntarism in Hollingsworth J and
Boyer R (eds) Contemporary Capitalism: The Embeddedness on Institutions, Cambridge: CUP pp197-291
24 | P a g e
Appendix B
In the main critiques of national pay determination in public services have concentrated on the former
issue – pay and local labour markets,31, 32 and 33 the irony being that moves towards more fragmented,
single employer bargaining in the private sector have often been driven by the latter – pay and
organisational change.34 and 35 The relationship between pay determination and organisational needs and
circumstances is dealt with below in the sub-section on cost efficiency and effectiveness. In the
remainder of this sub-section attention focuses on pay and local labour markets.
In general terms, critiques of national pay determination in British public services have been predicated
on the view that standard pay rates in the context of a regional unevenness in the supply of labour,
given differential living costs, and in the demand for labour, given variation in the industrial structure of
local economies, results in the ‘misallocation’ of labour with detrimental consequences for various
stakeholders. Those at the forefront of this critique have made extraordinary claims about the
consequences of national pay determination, suggesting, for example that it has weakened local
economies36 or that it has increased the likelihood of death from heart attacks in acute care setting.37
Given the poorly conceived and informed nature of some of this research, such claims are at best
overstated and at worst an irresponsible distortion. This is not the place to catalogue in detail concerns
about the arguments and the material underpinning these critiques, although it is worth noting in
passing that there is a glaring absence of data which clearly establishes that national pay determination
actually leads to the misallocation of labour reflected either in local vacancies rates or workforce
capabilities. Rather, consideration in this section is given to some of the broader assumptions
underpinning the notion that national pay determination might be insensitive to regional or local labour
markets.
Most striking in calls for public services pay flexibility to respond to local labour markets is an absence of
clarity as to what constitutes a regional or local labour market, and indeed whether such labour markets
might meaningfully form the basis for pay determination. Defining a catchment area which might be
31
Harding, R (2007) Poverty Pay: How Public Sector Pay Failed Deprived Areas, London: Social Market Foundation
Hall E, Propper C and Van Reenen J (2008) Can Pay Regulation Kill? Panel Data evidence on the effect of labour
markers on hospital performance, Journal of Political Economy, 118: 2, 222-73
33
Wolf A (2011) More than we bargained for, London: CentreForum
34
Katz H (1993) The decentralization of collective bargaining: A Literature Review and Comparative Analysis,
Industrial and Labor Relations Review, 47:1, 3-22
35
Brown W, Bryson A and Forth J (2008) Competition and the Retreat from Collective Bargaining, NIESR Discussion
paper No. 318, London: NIESR
36
Wolf A (2011), ibid
37
Hall E, Propper C and Van Reenen J (2008) ibid
32
25 | P a g e
Appendix B
deemed a regional or local market for pay purposes, and drawing upon such an area as the foundation
for the determination of pay, is at best highly problematic. Typically regions, however defined, combine
high and low cost areas, and areas with a high and a low demand for labour. There are a few areas, in
particular London and the South East, where a broadly defined and identifiable regional labour market
has remained consistently tight, and with high living costs. In general, however, regions do not equate
with labour markets: it is more common to find isolated labour market ‘hot spots’ within them. National
pay agreements in public services have usually made provision for local supplement to address such
conditions, provisions regrettably understated by some critics of these agreements.38
It is a testament to the cyclical and uneven nature of local labour market pressures that those private
sector organisations with a nationwide network of outlets – banks and supermarkets – typically retain a
national pay system and structure.39 These organisations use flexible pay supplements rather than
drawing upon some nebulous notion of region to set pay and address local labour market pressures. For
the individual public service employer – a district local authority, a NHS hospital trusts, or a Jobcentre
Plus office – local labour markets conditions are likely to vary within a given region or locality. In such
circumstances the value of the region as the basis of pay determination becomes highly questionable.
3.2.2 Cost Efficiency and Effectiveness
There are various types of costs associated with pay determination: for any organisation a primary
objective is to ensure that these costs are expended with efficiency and effectiveness. Three types of
cost associated with wage setting can be distinguished:
-
Pay bill costs: the actual costs of remunerating employees
-
Transaction costs: the costs related to the design, implementation and operation of a pay
system
-
Relational cost: the less tangible costs associated with maintaining and servicing relations
between those actors with a stake in pay determination
Pay bill costs. National, multi-employer pay determination is structurally predisposed towards
generating modest pay increases. Any agreed wage increase needs to conform to the ‘lowest common
38
Wolf A (2011) More than we bargained for, London: CentreForum
Incomes Data Services (1997) Annual review of pay and employment practices part one: a survey of 137 NHS
trusts, Health Service Report
39
26 | P a g e
Appendix B
denominator’: the pay increase affordable to the most resource-constrained employer covered by the
pay arrangement. As Schnabel et al note:
Centralised bargaining provides collective goods, for example, wage moderation…The terms
agreed in such bargaining are often oriented towards the less profitable companies and hence
protect larger, more profitable firms from higher pay claims.’ 40
This is reflected in the public sector where over the years, nationally determined pay increases have
been relatively modest. Indeed, the rationale for local pay determination has often prompted higher
rather than lower pay increases, employers adopting such local arrangements often encouraged to pay
higher rates to ensure employee buy-in, particularly where national arrangements have continued
elsewhere. In local government, for example, authorities opting out of national arrangements have been
more likely to award higher pay increases than those agreed nationally.41 The 20 or so local authorities
opting-out of national bargaining in the late 1980s and early 1990s were principally located in the south
east of England, and keen not to reduce pay but to pay higher rates as a means of recruiting and
retaining staff in a tight labour market.
A broader look at the pay data over the last decade or so confirms that settlements in the public sector
have been broadly in line with those in the private sector. While there has been a pattern of the
respective sectors falling behind and then catching-up with one another, taken over an extended period,
pay increases in the two sectors have been very similar. Dolton and Makepeace using Labour Force
Survey data from 1999 to 2009, conclude that:
‘Periods of public sector pay growing faster than private sector pay roughly matched the
amount of time private sector pay growth had outstripped that in the public sector. The perperiod difference in the two series is only 0.02% – negligible indeed.’42
They suggest that concerns raised in some quarters about the public sector moving ahead of the private
sector might be accounted for by a marked reduction in private sector pay increases registered in March
2008 – the start of the economic crisis. Dolton and Makepeace continue by noting that these concerns:
40
Schnabel C, Zagelmeyer S, and Kohaut S (2006) Collective bargaining structure and its determinants: An empirical
analysis with British and German Establishment data, European Industrial Relations Journal, 12: 165-88.
41
Bryson C, Gallagher J, Jackson M, Leopold, J, and Tuck K (1993) Decentralisation of collective bargaining: Local
Authority Opt Outs, Local Government Studies, 19:4, 558-83.
42
Dolton P and Makepeace G (2011) Public and private sector labour markets in Gregg P and Wadsworth J (eds)
The Labour Market in Winter: The State of Britain, Oxford: OUP
27 | P a g e
Appendix B
‘Do not take into account the way the swings and roundabouts have moved over the previous
years. Taken over the whole 1999-2009 period, there is no difference between public sector and
private sector pay rises. By the end of 2009, there was already an indication that the private
sector pay had bounced back’ (ibid).
Indeed there are strong grounds for arguing that there is lag effect on public sector pay, the current pay
freeze in the public sector constituting the same responses to economic crisis as felt by the private
sector in March 2008.
Arguments which suggest that national pay arrangements lead to higher earnings in the public sector
should also be treated with some care. While average earnings among public sector workers are, on
average, higher than those of private sector workers, this reflects differences in the profile of the
respective workforces or in their human capital. The public sector worker is more qualified, older and
more experienced that the private sector workforce: in short they have a stronger human capital base
which might be expected to attract higher pay. Dolton and Makepeace highlight the distortions arising
from a failure to control for human capital.43 Again using LFS data, a raw comparison suggests that the
earnings of the full-time public sector worker are markedly higher than those of the private sector
worker. Once human capital is taken into account a very different picture emerges. In 2009, the raw
data indicated that male full-time workers in the public sector earned 11.5% more than those in the
private sector: when human capital factors are controlled these workers earned 1.7% less. The raw data
revealed that women in the public sector earned 21.4% more than those in the private sector, a figure
which came down to 3.9% after controlling for human capital.
Transactions costs. The transactions costs associated with wage setting are incurred both in relation to
the determination of regular pay increases and to the ongoing maintenance of an established pay
system and structure. National pay determination has long been seen by employers as a way of
minimising these transaction costs, delegating to a central agency or body responsibility for many of
these related activities. This has been a means of acquiring the economies of scale mentioned by Jan
Parkinson and avoiding the duplication of time and effort referred to by Ed Sweeney. This is a rationale
for the continuation of national agreements, even where organisations with a network of country wide
43
Dolton P and Makepeace G (2011) ibid
28 | P a g e
Appendix B
branches, move to single employer bargaining. As Elliot et al, summarising the IDS44 research report
note:
‘The (IDS) study concludes that local, or single workplace or site level pay setting is not very
common (among these private sector companies). The reason for this is that companies find
that local pay setting duplicates effort and thus uses greater resources, that there is often lack
of appropriate local management expertise and that it might lead to loss of control of the pay
bill.’45
By implication, the scope and the need, to control such transaction costs are particularly marked in
public services. In the past questions have been raised about the viability of public sector organisations
sustaining the kind of sophisticated human resource function needed to service local pay
determination.46 This view finds some support in WERS data which suggested that in 2004 barely a
quarter of public service places (24%) had a specialist personnel manager, compared to exactly a third of
workplace in the private sector.47
It might with some legitimacy be argued that it is very unlikely that any NHS trust would be without a
specialist HR manager, but the costs of local pay determination even in relatively large public sector
organisations with personnel expertise should not be understated. With some local authorities
threatening to pull out of national pay bargaining in 2009, Graham White HR Director at Westminster
City Council stated: ‘The expertise and skill isn’t there in HR (to determine pay locally), simply because
they haven’t had to deal with this in their lifetime. The team at Westminster are highly skilled, but
adapting (to pay negotiations) would be a challenge.’ It is a view echoed by Justine Brooksbank, Sssistant
Chief Executive (HR and organisational development) at North Yorkshire Council: ‘there is something
very neat and tidy about having a national system. Yes, you lose a bit of control, but you don’t end up
spending months negotiating locally’.48 While the design and detailed objectives of public service
organisations will differ, they will, in the main, share a similar structure and purpose, and indeed
44
Incomes Data Services (2002) Pay Differences in UK Organisations: A Research Report by IDS for the Office of
Manpower Economics, London: IDS
45
Elliot R, Scott A, Skatun D, Farrar S and Napper M (2003) The Impact of local labour market factors on the
organisation and delivery of health services, London: NCCSDO
46
Bach S and Winchester D (1994) Opting out of pay devolution? The prospects of local pay bargaining in UK public
services, British Journal of Industrial Relations, 32:2, 263-82
47
Bach S, Givan R and Forth J (2009) The public sector in transition in Brown W, Bryson A, Forth J and Whitfield K
(eds) The Evolution of the Modern Workplace, Cambridge: Cambridge University Press
48
Golding N (2009) Local council pay bargaining opt-out may cause industrial relations headache for HR
Personnel Today, 7 August 2009
29 | P a g e
Appendix B
workforces, in terms of occupational and professional make-up. It is these similarities which ensure that
pay systems and structures can be developed, serviced and monitored at a national level.
Finally, it is worth noting the likely scale of transaction costs associated with a shift from a national to a
local approach to pay determination. National pay agreements are enshrined in individual employment
contracts, with any attempt to move from such agreement inevitably involving a major administrative
exercise. As Andy Albon, director of HR at Birmingham City Council noted in 2009 ‘A move (from
national bargaining) is a major step. It would almost certainly mean an amendment to around 60,000
staff contracts, and we certainly wouldn’t go into that lightly’.49 Of course, the costs associated with
such a change would not solely be transactional; there would also be major cost associated relations
with staff.
Relational costs. National wage setting removes pay as a potential source of management-employee
conflict at the workplace level. This is valuable to the employer in a number respects. First, responsibility
for pay increases, particularly when low, can readily be deflected by reference national negotiators, so
reducing the likelihood of pay decisions contaminating local relationships. As Schnabel et al note:
Wages are largely taken out of competition by multi employer bargaining, and the shift of
industrial conflict to a level above the company reduces the danger that disputes will sour the
working atmosphere within the establishment.50
It is striking, for instance, that in local authorities opting out of national agreements and giving generous
pay increases in ‘good times’ have had difficulty in controlling employee expectations in seeking low pay
increases in ‘bad times’.
National wage setting also protects against pay increases becoming tied too closely to broader
organisational change. It was suggested above that organisations often move to local pay determination
as a means of linking pay increases to broader organisational developments. The danger in such an
approach lies in employees placing a ‘price tag’ on any organisational change. A stable national
framework for pay determination avoids such a linkage, and provides a firmer basis for change. As
Councillor Roger Phillip, leader of Herefordshire County Council noted:
49
Golding N (2009) ibid
Schnabel C, Zagelmeyer S, and Kohaut S (2006) Collective bargaining structure and its determinants: An empirical
analysis with British and German Establishment data, European Industrial Relations Journal, 12: 165-88
50
30 | P a g e
Appendix B
‘People in local government can have the confidence to move towards organisational change
knowing that they have a very good basis in a national pay framework. The fact we have that
embedded gives people the confidence to be able to tackle these issues on a local basis and
organisational change is a big issues to tackle and having a solid basis to do it is a great bonus.’ 51
3.2.3 Transparency and consistency
A transparent and a consistent approach to pay determination contribute to the pursuit of a number of
organisational objectives:
-
Motivation: Transparency and consistency are often seen by employees as essential to a fair
pay system, with a considerable volume of research literature based on equity theory
attesting to the positive relationship between employee perceptions of procedural as well
as distributive justice and motivation (see for example, Cowherd and Levine52). This feeds
into evidence which suggests, perhaps unsurprisingly, that unless an employee understands
how a pay system functions, he or she is unlikely to be motivated by it.53
-
Equality: Transparency and consistency are particularly important against the backdrop of
a statutory framework designed to ensure that men and women receive equal pay for work
of equal value.
-
Mobility: Transparency and consistency ensure and facilitate mobility within and between
organisations: they reduce the employee uncertainties and risks associated with movement
to new locations. If employees are performing the same role, clearly some guarantee that
moving jobs will not be penalised is essential in supporting a national a labour market
Features intrinsic to national pay determination, particularly where it is jointly regulated, might be
viewed as a guarantee of transparency and consistency. This is self evidently the case with a national,
multi-employer model, where a range of organisations agree to implement a common pay system and
structure. In public services, the transparency and consistency of national pay determination has made,
51
www.youtube.com/watch?v=J6IQ7A0i9oc
Cowherd D and Levine D (1992) Product quality and pay equity between lower level employees and top
management: An investigation of distributive justice theory, Administrative Science Quarterly, 37: 302-20
53
Kessler I (1994) Performance Pay in Personnel Management in Britain, Sisson K (ed), 2nd Edition, Oxford:
Blackwell
52
31 | P a g e
Appendix B
and continues to make, a particularly significant contribution to the achievement of employee
motivation, equality and mobility. As already implied this stems from the fact that while delivered by
separate and diverse providers – various local authorities, NHS Trusts – and subject to local influences
and pressures, these are national services, (in the sense that they are publicly funded and delivered
throughout the country) employing very similarly structured workforces. In terms of motivation, the
employment of the same occupational groups by public service providers allows for ready and legitimate
pay comparisons: differential pay rates for workers performing the same job, clearly is a recipe to demotivation and disillusionment. Similarly, a shared configuration of occupational roles in different parts
of the public sector ensures the viability of a national job evaluation scheme, which might plausibly be
used by individual employing organisations to ensure that workers received equal pay for work of equal
value. Finally, a national model of pay determination allows public service professionals, in particular, to
move readily between organisations, their skills and capabilities under-written by their registered and
regulated status. Indeed, one of the major perceived drawbacks of the move to a fragmented agencybased form of bargaining in the civil service has been the manner in which it has constrained employee
movement between agencies across the civil service.
4. Reviewing Wage Setting in the NHS
In this final section of the paper, attention focuses on pay determination in the NHS over recent years
and into the future. Its purpose is to return to the core themes of resilience and continuity within a
healthcare context. It explores the resilience of national pay determination in the health service and
argues that this can be related to the capacity of this model to address the varied interests of a diverse
set of actors. More speculatively, the section addresses the continuity of national pay determination in
the NHS, particularly in the context of broader NHS reforms still in progress. It suggests that an
evaluation of this wage setting machinery might usefully draw not on absolute standards, but on how
the present arrangements fare relative to an alternative, local model of pay determination. Some of
the costs associated with moves to a local model are brought into particularly sharp relief in the part of
the paper by exploring trusts responses to calls for local pay determination in the 1990s.
The section is divided into three parts, dealing with: the development of national pay determination
and how it has fared over the years; the emergence and the functioning of Agenda for Change; and the
prospects for wage setting going forward.
32 | P a g e
Appendix B
4.1 Developments
4.1.1 National Pay and the NHS Context
As noted at the outset, the NHS has had a national model of pay determination based on joint regulation
between the government/management and the trade unions, since its inception in 1948. The adoption
of such a model can be related to various factors, largely shared with other parts of the public sector,
which adopted a similar approach to pay. Firstly, a national wage setting in NHS supported a nationwide
service, delivered, in the main, by a nationally regulated workforce, and according to consistent
standards of care delivery. Secondly, and for some 35 years, a national wage setting model based on
joint regulation reflected public policy. As a matter of principle, trade union engagement through
collective bargaining was seen by governments of different party political complexions as securing
industrial citizenship through the meaningful involvement of employees in the determination of their
own terms and conditions.54 It was only natural therefore that the government as an employer would
adopt this approach in the NHS, on the basis of Whitley arrangements. Thirdly, national pay
determination was seen as the most efficient and effective means of addressing the diversity of pay
objectives associated with a variety of stakeholders. Those with a stake in NHS include:
-
National policy makers and politicians with parliamentary accountability
-
Regional policy makers and managers, often with a workforce planning and development
responsibility
-
Local policy makers and managers responsible for the delivery of primary, secondary and
tertiary care services
-
Employees responsible for delivering services, their national and local trade union and
professional association representatives
-
Service users/patients their carers and families reliant on the NHS for the delivery of quality
care services.
-
54
Citizens as taxpayers and, by implication, indirectly financiers of the NHS
Fredman S, and Morris G (1998) The State as Employer: Labour Law in the Public Services, London: Mansell
33 | P a g e
Appendix B
The diverse range of pay objectives held these by stakeholders and informing pay determination might
be seen as summarised by the current terms of the NHS Pay Review Body:
-
The need to recruit, retain and motivate suitably able and qualified staff
-
Regional/local variation in labour markets
-
The funds available to Health Departments
-
The government’s inflation target
-
The principle of equal pay for work of equal value in the NHS
-
The overall strategy that the NHS should place patient at the heart of all it does.
It is a list which highlights the potential tensions and complementarities in pay determination. In terms
of complementarity, the recruitment, retention and motivation of staff is crucial to placing the patient at
the ‘heart of all the NHS does’: without a skilled and commitment workforce quality health services
cannot be delivered. The principle of equal pay for work equal of value might also be seen to contribute
to employee commitment, this form of equity often being seen as key to a ‘fair’ pay system. At the same
time, affordability or the need for pay increases to reflect available funding, might well lead to pay
settlements which undermine living standards: currently affordability is being presented as a
justification for a public sector pay freeze in the context of public expenditure reductions. Moreover,
sensitivity to regional/local labour forces does not always sit easily with internal equity, the basis for
equal pay: if local labour markets generate recruitment and retention difficulties for occupations which
score lower on job evaluation than for occupations where there are no such difficulties but which score
higher, how do organisations respond in pay terms?
Given these various goals and the search for an acceptable balance between them, it is not surprising
that the model of pay determination in the NHS has been subject to change over the years. As noted,
the most significant reforms have been the increasing coverage of the review body recommendations,
which were extended to registered nurses and allied healthcare professionals in 1983 and more recently
to most of the remaining NHS staff; and the Agenda for Change agreement in 2004, which inter alia
replaced occupational fragmented Whitley arrangements with a more integrated and rationalised set of
terms and conditions, coalescing around a single pay spine. It is noteworthy, however, that throughout
pay has remained nationally determined. The durability of national pay determination in the early to
mid 1990s was particularly striking. This was a period when the government actively sought to
encourage local pay determination at trust level, the resistance to this process by various actors
34 | P a g e
Appendix B
highlighting the value of a national model in the sector and the challenges faced in moving to trust wage
setting arrangements.
4.1.2 Local Pay in the 1990s
Government encouragement of local pay determination in the 1990s took two forms: the sanctioning of
a new local healthcare assistant grade, despite an extant Whitley nurse auxiliary grade; and
encouragement of local bargaining to develop pay and conditions at Trust level. The NHS and
Community Care Act, 1990 established a quasi-market for healthcare and NHS trusts explicitly
empowered to set terms and conditions for their staff outside of Whitley arrangements. However, both
the HCA and local pay initiatives made limited headway. This was reflected in government attempts to
impose local bargaining on trusts, partly through enabling agreements in 1994 for non-review body
staff, allowing trusts to make local payments based on organisational performance. It was also apparent
in the review body report for nurses, midwives, health visitors and the allied professionals, 1995. This
recommended a 1% national pay increase with an additional 0.5% to 2% to be awarded locally, a move
prompting industrial conflict, only resolved on the basis of an agreement ensuring that most workers
received the discretionary, local pay rises.55
Research confirmed the faltering and limited progress made on these two initiatives. In a study on the
introduction of the local healthcare assistant grade, found that this grade was mainly used as a means of
undercutting the pay of the Whitley nurse auxiliary grade.56 More generally a survey of 137 trusts
revealed that while over three-quarters had developed local terms and conditions, only 35 had made
extensive use of their freedoms to set terms which significantly differed from Whitley arrangements.57
Moreover, the slow progress was alluded to in the 14th Review Body Report for nurses, midwives and
health visitors, in 1997:
55
Corby S, Millward L, White G, Druker J and Meerabeau E (2001) Innovations in Pay and Grading in NHS Trusts,
London: University of Greenwich
56
Grimshaw D (1999) Changes in skill mix and pay determination amongst the nursing workforce in the UK,
Working Employment and Society 13:295-320
57
Industrial Relations Services (1997) Annual review of pay and employment practices part one: a survey of 137
NHS trusts, Health Service Report, Autumn quoted in Corby S, Millward L, White G, Druker J and Meerabeau E
(2001) Innovations in Pay and Grading in NHS Trusts, London: University of Greenwich
35 | P a g e
Appendix B
…we are disappointed with the course of local pay determination in 1996. Nursing staff appear
to have been offered by way of local pay increases that which was left after other priorities had
been met. The outcome for individual nurses has been uncertain and very often slow to
materialise. In many cases Trust management and staff were left negotiating over small sums.
This is not how we believed matters would develop when we made our recommendations.
A number of studies at the time highlighted the barriers faced by trusts in developing local terms and
conditions. These studies adopted a diversity of approaches, ranging from the use of case studies58 , 59, 60,
61 and 62
to surveys of key actors. 63 and 64 Nonetheless a fairly consistent picture emerged, suggesting the
following barriers to local pay determination:
Mixed messages: Despite an increasingly assertive government approach to local pay determination,
trusts were confronted with mixed messages from national policy on the development of local pay
determination. For example, in guidance produced for the public sector pay round in 1993, the Treasury
noted:
In practice, extremely devolved arrangements are not desirable. There are risks of workers being
treated differently for no good reason. There could be dangers of leapfrogging and parts of the
public sector competing against each other for the best staff.’65
More specifically, Corby and Higham point to statements from Alan Langlands, at the time Chief
Executive of the NHS Management Executive, asking all trusts to have local machinery in place by
58
Lloyd C and Seifert R (1995) Restructuring in the NHS: the impact of the 1990 reforms on the management of
labour. Work, Employment and Society, 9, 359-378
59
Corby S and Higham D (1996) Decentralisation of pay in the NHS: diagnosis and prognosis, Human Resource
Management Journal, 6, 1, 49-62
60
Lloyd C (1997) Decentralisation in the NHS: prospects for workplace unionism, British Journal of Industrial
Relations 35, 3, 427-446
61
Bach S (1998) NHS pay determination and work re-organisation, Employee Relations 20, 6, 565-576
62
Corby S, Millward L, White G, Druker J and Meerabeau E (2001) Innovations in Pay and Grading in NHS Trusts,
London: University of Greenwich
63
Buchan J (1992) Flexibility or fragmentation? Trends and prospects in nurses’ pay, Briefing Paper no.13 King’s
Fund Institute: London
64
Thornley C (1998) Contesting Local Pay: The Decentralisation of collective bargaining in the NHS, British Journal
of Industrial Relations, 36:3, 413:34
65
Quoted in Hatchett A (2010), Paying the Price, Public Finance, 1 July
36 | P a g e
Appendix B
February 1995, at the same time as Ken Jarrold NHS HR Director was noting that he did not expect very
trust ‘to be all singing, all dancing on pay’ by that date.66
Pay bill costs: One of the clearest illustrations of mixed messages emerged with the government’s
encouragement of local pay determination at a time when it was also seeking to constrain public
expenditure and pay bill costs. In response to the pay limits announced by the Chancellor in the Autumn
statement 1992, the National Association of Health Authorities and Trusts stated ‘The first national pay
policy for nearly twenty years – cuts across previous government statements, in particular the drive to
link pay and performance and to devolve and decentralise pay decision’.67 It was a point echoed by Bach
and Winchester in noting that: ‘It is clear that the 1.5 per cent limit and public sector increases in 1993
totally undermined the most innovative managers’ attempts to develop local pay and grading
systems.’68 By implication, the establishment of a local pay system had high set-up and ongoing pay bill
costs, not easily met at time on public expenditure constraint. Indeed, Corby found that while the
financial well-being was not a sufficient requirement for establishing a trust pay system, certainly it was
a necessary one. 69
Mixed arrangements. Inevitably the decentralisation of pay determination proved to be a ‘messy’
process, local trust arrangements co-existing with residual, alternative forms of wage setting: staff had a
contractual right to remain on Whitley terms, while review body recommendations continued to cover a
significant proportion of the workforce. The result was considerable complexity and cost in managing
diverse pay systems, along with disquiet among staff prompted by movement away from established
pay arrangements. As Bailey noted ‘(NHS) staff will not lightly accept any trust refusal to honour the
recommendations of this review process.’ 70
Relational costs: These worker concerns hint at the relational costs associated with moves to local pay.
A study by Buchan of 23 trust managers found that most preferred a co-operative route to determining
the pay of their staff, believing that to break from the review body system would lead to ‘anarchy’, a
66
Corby S and Higham D (1996) Decentralisation of pay in the NHS: diagnosis and prognosis, Human Resource
Management Journal 6, 1, 49-62
67
Quoted in White G (1996) Public sector pay bargaining: comparability, decentralisation and control, Public
Administration 74:89-11
68
Bach S and Winchester D (1994) Opting out of pay devolution? The prospects of local pay bargaining in UK public
services, British Journal of Industrial Relations 32:2, 263-82
69
Corby S (1992) Industrial relations developments in NHS trusts, Employee Relations 14:6
70
Bailey R (1994) Annual Review Article, 1993, British Public Sector Industrial Relations, British Journal of Industrial
Relations 32:1, 113-36
37 | P a g e
Appendix B
level of conflict not outweighed by potential gains.71 Indeed such gains were seen as less attractive
given that most managers felt that the existing pay agreement provided enough local flexibility. In
addition, the high relational costs associated with moves to local pay were linked to the nature of pay
systems introduced. Corby et al found that such systems were based on performance, noting that staff
were dissatisfied with the trust’s new pay arrangements, particularly where a comprehensive but
opaque system of performance related pay had been introduced.’72 Relational costs were further
inflated by union opposition prompted by local pay.73 Thornley, in her survey of UNISON representatives
in trusts found that almost three quarters (71%) viewed local bargaining as creating the potential for
conflict, while most (82%) suggested that local bargaining would undermine employee morale and
motivation.74
Transaction costs: As already implied, local pay determination was seen to generate high transaction
costs, inflated by doubts about local management’s capacity to deliver on such arrangements. In Corby
et al’s trust case studies, the development of local pay systems was seen as ‘less resource efficient than
national pay determination as there was a need to reinvent the wheel.’ 75 Indeed, in Thornley’s study
most respondents (93%) felt that local bargaining was very time consuming, with a considerable
majority, exactly two thirds (66%), believing that their trust was not equipped to bargain.
Other priorities and means: At a time of major organisational change, with the establishment of an
internal market for healthcare, trusts had more pressing concerns than those associated with a local pay
determination. Indeed, trusts felt that there were more efficient and effective levers for managing
change, and in particular for controlling pay bill costs, than developing a local approach to pay
determination. Bach, in particular, draws attention to the greater weight placed on work re-organisation
and changes in skill to manage (pay bill) costs in his case study trust.76 As Bach stressed:
71
Buchan J (1992) Flexibility or fragmentation? Trends and prospects in nurses’ pay, Briefing Paper no.13 King’s
Fund Institute: London
72
Corby S, Millward L, White G, Druker J and Meerabeau E (2001) Innovations in Pay and Grading in NHS Trusts,
London: University of Greenwich
73
Lloyd C (1997) Decentralisation in the NHS: prospects for workplace unionism, British Journal of Industrial
Relations 35, 3, 427-446
74
Thornley C (1998) Contesting Local Pay: The Decentralisation of collective bargaining in the NHS, British Journal
of Industrial Relations 36:3, 413:34
75
Corby S, Millward L, White G, Druker J and Meerabeau E (2001) ibid
76
Bach S (1998) NHS pay determination and work re-organisation, Employee Relations 20, 6, 565-576
38 | P a g e
Appendix B
The director of personnel (in the case study trust)believed strongly that many Trusts were
"putting the cart before the horse" in emphasising the development of elaborate local pay
structures, using proprietary systems of job evaluation, based on existing working practices.
Some perceived gains from local pay determination in the 1990s should not be discounted. However as
Corby et al note, these gains often related to the scope they provided to harmonise pay arrangements
for diverse groups given the fragmentation of the Whitley set-up at the time, and to the opportunities
created to link pay to employee competencies and development.77 The value of these benefits needs to
be re-considered in the wake of Agenda of Change, seeking to deal with such concerns through the
renewal of a national approach to pay determination.
4.2 The Current Arrangements for Pay Determination
Drawing upon the arguments presented in this paper, Figure 1 below sets out the current arrangements
for pay determination in the NHS. The figure comprises a number of elements designed to illustrate: the
context for pay determination in the NHS; the relationships between the broad range of actors with a
stake in pay determination; the diversity of their pay objectives – affordability, equity, control, and
flexibility; and how these are managed by the prevailing wage setting machinery to generate the
following important outcomes:
-
Discipline and control: The NHS Pay Review Body operating under terms of reference set by
the government and providing recommendations, has allowed central government some
control over pay settlements. In combination with the infrastructure established by Agenda
for Change a ‘level playing field’ is set for pay conditions which prevent a ‘race to the
bottom’ or ‘the top’. The agreement makes provision for payment to address occupation
and local labour market needs.
-
Cost efficiency and effectiveness: Closely related, these arrangements have provided
relative modest and affordable settlements, minimising the transaction costs expended by
trusts, and removed pay as a possible source of conflict and disorder in relations within
employees.
-
Transparency and consistency: The consistency inherent in these arrangements has
contributed to the perceived fairness of the pay system, crucial in stimulating employee
motivation. In ensuring the pay structure is equality-proof, the arrangements also support
77
Corby S, Millward L, White G, Druker J and Meerabeau E (2001) Innovations in Pay and Grading in NHS Trusts,
London: University of Greenwich
39 | P a g e
Appendix B
the sense of fairness, but more tangibly also ensure equal pay for work of equal value.
Moreover the transparency and consistency of the arrangements have facilitated staff
mobility, especially among the registered part of the workforce, so crucial to the functioning
of a national service.
Figure 1: Current Arrangements for Pay Determination in the NHS
NHS structure:
Stakeholder s
National
Regulated
Accountable
Funded
Policy makers/Managers Employees/Representatives Patients/Carers Citizen/Taxpayer
Pay objectives:
Affordable
Equitable Controllable
Transferable
Flexible
National
Pay Determination
Pay Arrangements:
Pay outcomes:
NHS Pay Review Body
Agenda for Change:
-Pay spine/bands
-Terms and conditions
-Job Evaluation Scheme
-Knowledge and Skills
Framework
-Discipline and Control
-Cost Efficient and Effectiveness
-Transparency and Consistency
Of course, some caution is needed in assuming that the current, national wage setting arrangements
fully meet these goals and expectations. For example, there has been some debate about whether
Agenda for Change has delivered on its ‘promised’ contribution to increase productivity and reduce
costs in the NHS. The difficulties faced by the NHS in assessing the impact of Agenda for Change on
productivity and costs drew particular criticism in a recent National Audit Office report.78 At the same
time this prompted a calculation from the Department of Health suggesting that pay modernisation in
78
National Audit Office(2009) NHS Pay Modernisation in England: Agenda for Change, London: The Stationery
Office
40 | P a g e
Appendix B
England ‘had delivered at least £1.3 billion net savings over the first five years’, savings which derived
from ‘increase productivity, reduced use of agency staff, a reduction in pay drift and higher quality
care.’79
This care in assessing the impact of Agenda for Change relates to the paucity of research on the
agreement’s implementation and impact. To date, there have been two independent studies, assessing
the roll-out and consequences of Agenda for Change: A King’s Fund Study80, and a National Audit Office
report.81 The picture presented by these studies is fairly consistent. It suggests that Agenda for Change
has been welcomed by stakeholders as an improvement on the previous fragmented and complex
national arrangements, and seen as providing a firm basis for taking forward important substantive
issues, particularly equal pay and new ways of working. Commentators and practitioners have raised
residual implementation concerns, particularly the time taken to embed the Knowledge and Skills
Framework.82 and 83 Nonetheless, this does not detract from the perceived overall value of Agenda for
Change. As has been stressed:
‘Agenda for Change does not need to be scrapped and renegotiated – just applied properly.’84
The value of Agenda for Change as a new and more accessible management tool was recently signalled
at the most senior level of the NHS, by its Chief Executive David Nicholson in his evidence to the House
of Common Public Accounts Committee. In pointing to Agenda for Change as a tool which helps improve
productivity, he stressed that:
‘We have a pay system now which is much simpler, much more flexible, much more able to
respond to the individual needs of organisations than the old Whitley system was in the past,
and individual organisations can make those changes at a local level.’85
79
House of Commons Public Accounts Committee, NHS Pay Modernisation in England: Agenda for Change, 29th
Report of Session 2008-9 Ev 5, London: Stationery Office
80
Buchan J and Evans D (2007) Realising the Benefits? Assessing the Implementation of Agenda for Change,
London: King’s Fund
81
National Audit Office (2009) ibid
82
House of Commons Health Committee Workforce Planning: Fourth Report of Session 2006-7/ HC 171 (2006-7)
London: The Stationery Office
83
National Audit Office (2009) ibid
84
Britnell M (2010) The Future of Agenda for Change, Health Service Journal, 25 February
85
House of Commons Public Accounts Committee, NHS Pay Modernisation in England: Agenda for Change, 29 th
Report of Session 2008-9 Ev 5, London: Stationery Office
41 | P a g e
Appendix B
This view is supported by findings presented in the NAO report which states that ‘There was widespread
agreement within the NHS that a new pay system was needed’, with suggestions that there were cost
efficiencies to emerge from these arrangements:
‘Agenda for Change makes it easier for managers to estimate costs now that there are common
staff terms and conditions. It is also simpler for budget holders, such as ward managers, to
understand and monitor their budgets.’86
In a NAO census of HR Directors in 244 trusts, almost all (98%) agreed or strongly agreed that a new
national contract was needed, and most (88%) agreed that the old arrangements were overly complex.87
Similarly the King’s Fund study found that ‘Most of the NHS Trust managers interviewed were in favour
of Agenda for Change believing that, in part at least, it assisted in delivering improvement in patient care
and staff experience that were it stated objectives’.88
Some further support for these findings can be found in the fact that only one NHS Trust has to date
opted-out of Agenda for Change: Southend University Hospital NHS Foundation Trust.89 As reported in
the Health Service Journal, Southend has had a long history of local pay determination, its head of HR
Operations noting a ‘local package helped in recruit and retain.90 In the same article, Southend reported
that it did not have a recruitment problem, the possibility of local pay increase below that awarded
under Agenda for Change appearing to unsettle employees.
Indeed, Trusts have seen Agenda for Change as providing sufficient flexibility to deal with local
recruitment and retention issues. Responding to a question from the Public Accounts Committee on the
sensitivity of Agenda for Change to regional/local labour markets conditions, David Nicholson notes:
There was always (an annex91) of the agreement, which set out within the agreement what are
the flexibilities that organisations have, and I think it is important that any system, particularly a
national system has flexibility, so the ability to flex for regional pay, the ability to look at the
86
National Audit Office (2009) NHS Pay Modernisation in England: Agenda for Change, London: The Stationery
Office
87
National Audit Office (2009) ibid
88
Buchan J and Evans D (2007) Realising the Benefits? Assessing the Implementation of Agenda for Change,
London: King’s Fund
89
Berry M (2006) Southend hospital trust staff vote to ditch Agenda for Change pay system Personnel Today, 4 July
90
Moore A (2009) How long can Southend hospital remain off the NHS Agenda for Change, Health Service Journal,
21 May
91
This relates to Annex K which allows Trusts to offer alternative packages of benefits of equivalent value
42 | P a g e
Appendix B
total package with holidays and terms, seems to me perfectly reasonable flexibility. The point of
it is that first of all it has to be within its own framework; it cannot step outside of it. Secondly it
has to be agreed with local staff. It seems to me that those are positive things. 92
The capacity of national pay determination to address regional/local issues is reflected in the King’s
Fund report. Most of the case study managers who expressed an opinion about local pay did not
welcome it as a possibility – they saw it as costly, resource intensive and unnecessary. The authors
quote a number of concerns raised by their respondents:
’A huge task would be involved in moving away from Agenda for Change’
’There is enough flexibility in Agenda for Change’
‘I would not want to move to local pay…you would end up paying more than the national
agreement’ 93
In more substantive terms, the National Audit Office and King’s Fund studies point to Agenda for Change
as supporting a number of positive developments, with two themes emerging as particularly important.
The first relates to the ‘fairness’ of the new system, particularly in addressing pay equalities. As the
King’s Fund study notes:
Achieving equal pay for jobs of equal value was a one of the key objectives of Agenda for
Change. The trust managers were generally supportive of the move to standardised working
hours and job evaluation based pay as providing a more transparent and ‘fairer’ pay
system…While it cannot be confirmed that Agenda for Change has guaranteed equal pay, it does
appear to have been an important factor in limiting the exposure of the NHS to equal pay
clams.’94
In addition, the Hartley judgement which addressed issues surrounding the fairness of Agenda for
Change confirmed that it is an equal pay proofed system. The tribunal ruled that the job evaluation
scheme is robust and that the pay system is fair.
The second theme is associated with new ways of working and the emergence of new roles,
particularly at Band 4 assistant practitioner level. Certainly the development of new approaches
92
House of Commons Public Accounts Committee, NHS Pay Modernisation in England: Agenda for Change, 29 th
Report of Session 2008-9 Ev 7, London: Stationery Office
93
Buchan J and Evans D (2007) Realising the Benefits? Assessing the Implementation of Agenda for Change,
London: King’s Fund
94
Buchan J and Evans D (2007) ibid
43 | P a g e
Appendix B
to work organisation has been uneven – both in terms of region and clinical area95 and 96 – but both the
King’s Fund and the National Audit Office studies suggest Agenda for Change has facilitated this process.
The King’s Fund study notes that ‘Most of the 10 trusts reported that new roles a job redesign had
already occurred as a result of Agenda for Change.’ 97 This was further reflected in the National Audit
Office study which notes that ‘around half of trusts reported to us that they have used Agenda for
Change to improve clinical pathways by creating new roles for staff. This picture was supported by
evidence at trusts we visited.’98 As Michael Griffin, Executive Director of HR at King’s College Hospital
NHS Foundation Trust noted in his evidence to the House of Commons Public Accounts Committee:
(Agenda for Change) has really started the process of breaking down the silo mentality which
existed previously. It has enabled us to provide a common core way of evaluating jobs and to
start mixing and matching skills form across traditional skills boundaries and provide a series of
core composites which everybody’s job is measured against…It really is making a major
contribution to start bringing about an integrated workforce to provide integrated services.’99
The benefits derived from Agenda for Change should not detract from the difficulties faced by some
trusts in taking forward this model. The studies highlighted the limited progress made in implementing
the Knowledge and Skills Framework and its associated performance management systems, pointing in
particular to a lack of management capacity in dealing with such issues.100 These concerns do, however,
need to be placed in context. In local government, a far less complex and prescriptive agreement than
Agenda for Change was still not fully implemented almost ten years after it was signed.101 The Local
Government Pay Commission (para 5:9) noted that while the majority of local authorities had
harmonised hours under the Single Status Agreement, only 25 out of some 350 had completed the
introduction of a new pay structure.102 Moreover, if questions, are being raised about NHS management
95
Spilsbury K and Studdard L (2009) Mapping the Introduction of Assistant Practitioner roles in Acute NHS Trusts in
England, Journal of Nursing Management, 17(5): 615-26
96
Kessler I, Heron P and Dopson S (2010) The Nature and Consequences of Healthcare Assistants: Final Report:
Southampton: SDO
97
Buchan J and Evans D (2007) Realising the Benefits? Assessing the Implementation of Agenda for Change,
London: King’s Fund
98
National Audit Office (2009) NHS Pay Modernisation in England: Agenda for Change, London: The Stationery
Office
99
House of Commons Public Accounts Committee, NHS Pay Modernisation in England: Agenda for Change, 29 th
Report of Session 2008-9 Ev 8, London: Stationery Office
100
National Audit Office (2009) ibid
101
Bach S and Kessler I (2011 forthcoming) The Modernisation of Employee Relations: Targeted Change,
Basingstoke: Palgrave
102
Local Government Pay Commission (2003) Final Report, London: LGPC
44 | P a g e
Appendix B
capacity within the context of a national model of pay determination, albeit one founded on the
development of trust based practices, questions might legitimately be raised about the management
capacity available to develop more local approaches to pay determination, especially against the current
backdrop of radical organisational change and financial constraint.
4.3 The Future of Pay Determination in the NHS
At the time of writing, with the Health and Social Care Bill still to be enacted, some uncertainty remains
as to the future shape and functioning of the NHS. However, the broad direction of travel and the
backdrop for the provision of healthcare in the immediate years is fairly clear. The future NHS is likely to
be characterised by three features:
-
Accelerated fragmentation
-
Mixed provision
-
Financial constraint.
Each of these features raises questions about the nature of pay determination in the NHS, although the
most pertinent general question to consider is whether it is viable to move from a national to local
model of pay determination in a period of fundamental organisational change against the backdrop of
resource constraint and the need for cost savings. While the Bill relates solely to England, the
implications for national pay determination in the UK are far-reaching.
Fragmentation. As already implied, the future reforms of the NHS in England aspire to achieve plurality
of provision of NHS services. As part of this, the powers of autonomous Foundation Trusts to set terms
and conditions as well as greater discretion for planning and developing their workforces will
accelerate.103 Against this backdrop, and somewhat analogous to the period in early-mid 1990s when
NHS trusts first emerged, this has been accompanied by renewed calls for local pay determination.
These calls have, however, been accompanied by a deafening silence by the government, particularly in
Liberating the NHS: Developing the Healthcare Workforce on how the decentralisation of pay might
affect its plans for workforce development and planning.104 While the emphasis has been on local
responsibility, not least reflected in calls for the development of local skills networks, the government
still appears to recognise a national labour market for health service professionals. As it notes, ‘To
provide sustainable and improving services, healthcare providers need to operate within a functional
103
104
Department of Health (2010) Liberating the NHS: Developing the Healthcare Workforce, London: DH
Department of Health (2010) ibid
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Appendix B
local and national healthcare labour market and not in isolation’.105 As has been stressed, however,
there is a tension between local pay determination which might differentially reward the same skills and
the effective functioning of national labour. Moreover, it has been stressed in this paper that local pay
might well discourage skills development where trusts feel they can buy in skills developed elsewhere.
The government seems to recognise these tensions as it states: ‘It would be unfair if some healthcare
providers bore the costs of providing skills to the local labour market while others did not.’106 Equally
apparent is its reluctance to confront such tensions and they might be addressed.
Mixed provision. The mixed provision of services is likely to be reflected not only in the delivery of
healthcare by organisations from different parts of the economy – the public, private and independent
sectors – but in new types of organisation, in particular, social enterprises. This mix is likely to encourage
a wider distribution of providers in terms of size and complexity. Thus, while in some regions community
services are being subsumed by local trusts to create much larger, more complex organisations, in
others these services are likely to be performed by small, bespoke social enterprises.
The consequences for pay determination emerge in a number of guises. Firstly, the spinning off of social
enterprises and the more general provision of healthcare from the private and independent sectors
might be seen as equating to the ongoing outsourcing of service provision over a number of years with
familiar consequences for pay. If the Transfer of Undertakings (Protection of Employee) Regulations
apply, national pay and conditions are likely to hold for staff moving over, although the withdrawal of
the Code for the Two Tier Workforce leaves the door open to new staff being paid an a different basis.
Secondly, and in the context of the commissioning of healthcare services, much will depend upon
whether competition goes forward on the basis of price: past experience suggests that where price is
part of the competitive process, this places downward pressures on labour costs as a means of winning
contracts.107 and 108 Thirdly, trusts with much larger workforces might consider themselves more viable
units for local pay determination. At the same, given the changes, and the organisational development
work needed to establish these larger, more elaborate trusts, management might well pause before
introducing new instabilities through a movement away from national pay determination.
105
Department of Health (2010) Liberating the NHS: Developing the Healthcare Workforce, London: DH
Department of Health (2010) ibid
107
Bach S (1989) Too High A Price To Pay? Warwick Papers in Industrial Relations, 25. Coventry: IRRU
108
Escott K and Whitfield D (1995) The Gender Impact of CCT, Manchester: EOC
106
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Appendix B
Financial constraint. This reflective pause for thought might be deepened given the financial constraints
faced by trusts. The financial pressure facing the health service in the coming years have been well
documented and are widely appreciated.109
These are pressures which have already prompted major organisational change, with its associated
disruption and uncertainties for employees. Attention has been drawn above to the cost efficiency and
effectiveness associated with a national system of pay determination and by implication, the high costs
trusts trust would face both in moving to and sustaining a local wage setting model. Moreover, in a
labour intensive sector such as the NHS, the relational costs associated with such a move are also likely
to be high. Given the current upheavals being experienced by NHS staff, how might they respond to
such a fundamental change in their employment terms and how might any resultant demoralisation
feed through to the quality of healthcare provision? In the private sector a shrill prescriptive rhetoric
encouraging new approaches to pay is accompanied by evidence to suggest that employers are often
extremely reluctant to change wage setting machinery: pay is so central to the effort-reward bargain
that any such change is seen as a high risk given likely employee concerns110 and 111. In highlighting the
reluctance of member countries to change wage setting machinery the OECD noted:
‘National industrial relations structures and practices are deeply embedded in the economic and
social fabric and not easily changed.’112
National pay determination is deeply embedded in the NHS, with high transactional, relational, and pay
bill costs likely to be generated in a period of financial constraint if attempts are made to uproot it. Of
course, this is not to suggest that aspects of local pay determination might not have some attractions to
the employer in terms of control and immediate savings. It is, however, being argued that benefits are
likely to be outweighed by the costs associated with the upheavals and uncertainties caused by any such
moves. Stressing the five years it took to negotiate Agenda for Change, Mark Britnell recently noted in a
Health Service Journal article that:
109
see for example www.nhsconfed.org/OurWork/latestnews/Pages/NHS-Confederation-issues-warning-on-NHSfinance-pressures.aspx
110
Kessler I (1994) Performance Pay in Personnel Management in Britain Sisson K (ed) 2nd Edition, Oxford: Blackwell
111
Kessler I (1995) Reward Choices in Human Resource Management: A Critical Text, Storey J (ed) London:
Routledge
112
OECD (2004) Employment Outlook, Paris: OECD
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Appendix B
‘The NHS does not have the time to national re-negotiate terms and conditions and there is
scant evidence that local freedoms, especially for foundation trusts have been used in any
material fashion to date.’113
5. Summary and Conclusions
This paper has proposed a close relationship between the nature of public service delivery and a
national model of pay determination. Displaying considerable resilience over years, this model has been
distinctive, with pay determination assuming a very different form in the private sector. This resilience
and distinctiveness has been related to the structure and organisational dynamics of the public sector.
This sector has typically employed a highly professional workforce to provide publicly funded national
services to common standards to the most vulnerable members of the community. The public sector
involves a complex and extensive bundle of agents or stakeholders – employees, managers, services
users, employers, policy makers at different levels and citizens as taxpayers – in the provision of these
services, all subject to overlapping or separate forms of accountability. These features of the sector, its
services and actors, feed through to the process of pay determination, lending it a particular quality.
Most significantly the participation of a diverse set of stakeholders leads to goal dispersion in the wage
setting process, with pay determination in the public sector pursuing a wide range of aims, sometimes
complementary, often in tension. This was illustrated by the long list of considerations informing the
NHS Pay Review Body remit, which included the requirement for pay increases to address recruitment,
retention, and motivation, local labour markets needs, patient concerns, affordability, and equity. This
paper has argued that the resilience and continuity of national pay determination in public services lie in
its sensitivity to the sector’s contextual features and to its efficiency and effectiveness in dealing with
the diverse pay goals held by multiple stakeholders. It has been stressed that this has been achieved by
a national wage setting model with the capacity to generate and sustain the following outcome:
-
Discipline and control
-
Cost efficiency and effectiveness
-
Transparency and consistency
The paper has applied this line of argument to an understanding of the past and future development of
national pay determination in the NHS. The resilience of national wage setting in the NHS in the face of
113
Britnell M (2010) The Future of Agenda for Change, Health Service Journal, 25 February
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various pressures is presented as a testament to its sensitivity to context, and to its capacity to manage
diverse pay objectives. This was particularly striking in the 1990s when public policy attempts to
encourage trust based bargaining made limited headway, and highlighted some of the barriers to and
dangers inherent in moves to local pay determination. Indeed, the development of the current approach
to wage setting based on Agenda for Change and review body recommendations is presented as an
approach which improved, and more efficiently and effectively addressed the complementary and
competing needs associated with pay determination in the NHS. Given new and current pressures on
this model, the paper also raises the need for careful consideration of the costs and benefits associated
with national pay determination, relative to more decentralised arrangements, particularly in a period of
financial constraint. Greater local pay determination might well have major transactional, relational and
pay bill costs, outweighing any immediate gains arising from any such move.
The paper has not sought to obscure the shortcomings of national pay determination in the public
sector, and more particularly in the NHS, relative to a more decentralised approach. It has, however,
been suggested that given the diverse range of objectives held by different stakeholders operating in a
sector with distinctive features, national pay determination provides a firm basis for the complex of task
of managing the healthcare workforce in times significant organisational change and uncertainty. Too
often critics of national wage setting have concentrated on its capacity (or not) to manage particular or
singular outcomes, without acknowledging its need to address and trade off various, diverse objectives.
Too often critics have ignored the opportunity costs associated with alternative, more decentralised
models of pay determination, understating the resources needed to manage these models and the
instability caused by any shift towards them. As pressures on national pay determination mounts, those
considering local alternatives to national pay determination might usefully be guided by the adage ‘be
careful what you wish for’.
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