The take it or leave it deal

Highly-unionised public servants will be more militant than workers in the private sector

By John Philpott

There’s something slightly Orwellian about the language used by the Conservative-Liberal Democrat coalition government. Talk of consultation on how best to tackle the record fiscal deficit sits oddly with the coalition’s determination to confine debate within a single policy narrative that places the emphasis overwhelmingly on cuts in public expenditure, rather than increased taxation. So although ministers will indeed consult widely on how best to cut spending, alternative policy narratives are effectively ruled out of bounds. And the same goes for references to a so-called ‘new deal’ for public sector workers.

A deal usually implies some sort of mutual agreement, normally involving a degree of give and take. Yet in wielding the axe on public spending, the deal on offer to the UK’s 6 million public employees is in reality one of take it or leave it, with a two-year pay freeze for all but the lowest paid, plus changes to pension arrangements and redundancy terms, accompanying 600,000 job cuts between now and 2015. Ministers are hoping that the current mood of national fiscal crisis will not only cause public sector workers to accept rather than resist this, but also to actively engage with their employers to deliver more for the taxpayer, in much the same way as private sector workers responded to harsh economic reality during the recession. If so, the outcome will be a slimmed-down state doing better with less. But is this likely? I’m not so sure, at least not without a mighty bust-up between the Government and the powerful public sector trade unions.   

Since the recession hit the jobs market in 2008, the power balance in private sector workplaces has shifted strongly to employers, with millions of employees accepting a pay freeze or pay cut in the hope of avoiding the dole. And even though the recovery is now underway, average pay rises are still falling well short of price inflation. Yet while this pay flexibility clearly helped limit job losses and may aid job creation in the next few years, the idea that it shows we live in an era of more cooperative employment relations is a tad overdone.

Most employees reluctantly bowed to the inevitable. The quarterly CIPD/YouGov survey of UK employee attitudes finds that most adopted a grin and bear it attitude to work during the recession as job insecurity soared. The proportion who feel actively engaged with their employer remains low: by summer 2010, almost 2 in 5 employees were expressing a desire to switch employers within a year. And, worryingly for the Government, public sector workers are already generally less positive about their employers than their private sector counterparts, despite having enjoyed relatively good times throughout the past decade.

During the noughties, public sector workers squeezed 5 per cent more pay out of their bosses on average than those working in the private sector, while retaining the longstanding benefit of far greater job security and more generous employer provided pensions, the latter in effect adding around 12 per cent to the average annual public sector pay packet. However, although in tough fiscal times a majority of UK citizens might now consider it fair to curtail any advantages enjoyed by the public sector workforce, one can’t necessarily expect the prospect of pay curbs and job cuts to be greeted stoically by public sector workers themselves.

Were discontent to show up simply as greater staff dissatisfaction in the public sector there might be little to worry about, notwithstanding the everyday productivity and performance problems that always emerge in unhappy workplaces which would obviously hinder progress towards meeting the Government’s objective of ‘doing more with less’. Just like private sector workers in the recession, the resulting attitude would be one of grin, bear it, and get on with things. But there is, of course, one big difference between the private and public sector workforce: the latter is far more heavily unionised - a factor that has the potential to make for a much stormier employee response to workplace austerity.

The omens are not great. Even before the recession the public sector was relatively strike-prone as unions responded to the impact of what now look like very modest efficiency drives first set in train by the former Labour government in the mid-noughties. Public sector employees accounted for 94 per cent of all working days lost to labour disputes in 2008, with a strike rate (i.e. strikes per 100,000 employees) of 124 compared with only two in the private sector. I suspect this will prove to be merely a mild foretaste of what we are likely to see in the next two to three years once the impact of the UK’s longest ever sustained squeeze on public service spending really starts to bite.

Unrest might not be universal – there may well be many examples of positive co-operation at local workplace level between public service workers and managers. But some kind of national strike in the public sector is probably unavoidable, possibly spreading to other parts of the economy too. The outcome of such a conflict will be the ultimate determinant of the shape of any new deal for public sector workers, in much the same way as the miners’ strike in the 1980s played an important role in determining subsequent trade union influence in the economic life of the nation.             

29 July 2010

John Philpott. Chief Economic Adviser, Chartered Institute of Personnel and Development