Exploring the Role of Public Sector Pay Review Bodies
The UK economy is caught up in a wave of strikes involving teachers, nurses, ambulance workers, train drivers and many others over pay demands and working conditions. As wage increases lag well behind inflation, what is the role of the Pay Review Bodies (PRB) in this process and how might these be appraised?
In light of the cost-of-living crisis, our Deputy Director Prof Adrian Pabst spoke with Prof Peter Dolton, a Research Director in applied econometrics to discuss whether there is a case for reviewing what the PRBs do and how the government uses them.
What are the PRBs and how well have they worked up to 2021?
There are seven core PRBs: for School Teachers, Nurses and other Health professions, Doctors and Dentists, the Prison Service, the Police, the Armed Forces and Senior Salaries. The PRBs cover 2.5 million workers out of the over 5 million employed in the public sector or central and local government. The main function of these independent Review Bodies is to advise the government about appropriate pay awards taking into account the particular circumstances of the remit group and reflecting the different conditions across disparate labour markets. In particular, they give consideration to relative pay comparisons, cost of living changes, the relative position of recruitment and retention into the occupation and finally the affordability position of the government.
The PRBs are evidence-based bodies that do not have constituent statutory members from either employers or the unions but do take evidence from all such bodies on board in making their recommendations. Appointees to the PRBs are independent experts appointed to make objective judgements and the pay determination process should be strongly influenced by these independent bodies. This is in sharp contrast to the other public sector occupations (like civil servants and Local Government employees) whose pay is determined by a collective bargaining arrangement between the unions and the employers. (It is also worth emphasizing that the current disputes involving transport workers and other groups are not covered by the PRBs and not considered in the present discussion.)
Recent econometric evidence suggests that these PRBs have played an important role in keeping wage inflation under control and have also been central to limiting harmful industrial disputes and damaging lengthy strikes. Unfortunately, the traumatic events of 2022 have brought this steady equilibrium into a new sharp focus. What has changed is that we have experienced a profound exogenous shock to the Cost of Living (CoL) with the Russia-Ukraine war. Up until 2022 the PRBs have acted as convenient objective bodies which consider public sector pay awards.
What have the PRBs most recently recommended and why is this now contentious?
The most recent annual cycle of PRB recommendations of pay rises for 2022 was as follows for each group: Prison officers 4 per cent, Nurses 4 per cent, Police 5 per cent, Judges 2.5 per cent, the Armed Forces 3.75 per cent, Doctors 4.5 per cent, and Teachers 5 per cent in 2022 and 5 per cent in 2023. Most of these recommendations have been accepted by the relevant government departments.
These recommendations relate to the evidence taken by the PRBs in late 2021 and very early in 2022 – before the Russia-Ukraine War. During this period the RPI/CPI was rising by around 4 per cent per year. Hence the recommendations were broadly in line with the then rising cost of living. The reality is that by the time these recommendations were being accepted by the relevant government departments the cost of living had shot up to around 10 per cent. In this heightened dispute it is not surprising that many unions have expressed dissatisfaction with the PRB review process and already said they will withdraw from future participation in the process in the future.
Politically they also serve a very useful function for Government, which sits outside political processes. The Government can, and does, repeatedly say that PRB recommendations are objective, getting politicians out of some very difficult conflictual situations by being able to say that an expert body has considered the evidence and made its recommendations which they are following. In practice the Government can use the PRBs to absolve them from making difficult decisions. But the reality is that HM Treasury only welcomes the PRBs if they provide back the recommendations the Exchequer is happy to implement. When a PRB has not done this, then the recommendations have often been rejected. So, in reality, it is questionable whether the PRB actually has the political agency it should do.
How Might PRBs better advise on public sector pay in the future?
Since they were set up the PRBs have only ever had the remit of making recommendations about pay and working conditions and affordability in the different occupations. In practice the relevant Secretary of State is under no obligation to accept these recommendations (and sometimes chooses not to). It would be a major change of their remit to ask them to play a different role in modern times. But arguably this may be justified. More specifically, suggestions have been made that they should be involved in making recommendations about the future supply of workers from abroad and that they should give consideration to improvements in public sector productivity and tie wage increases to them.
The research work on public sector productivity is vital here. Recent work from the Productivity Commission suggests that the ONS figure of 0.7% productivity rises in much of the public sector has some credence. What is less clear though is how this productivity rise translates into a pay award for different occupational workers. It also raises a separate question of how that might feed into PRB deliberations. Proposing public sector wage increases be linked to productivity would be a big change for the terms of reference of the PRBs and one which could not be implemented quickly. Arguably the most important reform required is that PRB recommendations be implemented quickly on up-to-date evidence.