Regional pay for public-sector workers 'could increase union membership' Unions fear regional wage levels will lead to pay cuts for teachers, nurses and civil servants. Photograph: Paul Doyle/Alamy Setting regional pay levels for public sector workers could increase trade union membership and lead to more confrontations over salaries, according to independent pay experts, as the government prepares to introduce localised wage deals. A report by Incomes Data Services (IDS) warns of "many downsides" to George Osborne's confirmation in the budget that he will make public sector pay "more responsive to local pay rates" to help the private sector grow in economically depressed parts of the UK. Trade unions fear this will lead to cuts in pay for teachers, nurses and civil servants around the UK and claim it would take demand out of local economies. The IDS study, commissioned by the Prospect and FDA civil service trade unions, claims that there could be unexpected side effects from devolving pay decisions for teachers and NHS staff. "Localised bargaining could also have the effect of increasing union membership and activism if pay setting was to become an issue that was closer to home," said the report. The study adds that the private sector is already showing signs of a more vibrant pay environment, agreeing average pay settlements of 2.5% last year compared with zero for the public sector. It also focuses on pay differentials between civil service employees and their privately employed counterparts, citing the example of "grade six" roles - head teachers and hospital consultants - being 54% lower than comparable roles in financial services and manufacturing. Pay for senior executive officer roles in the civil service - such as veterinary surgeons and call centre managers - is up to 27% lower than for comparable roles in the financial sector, according to IDS. The report lists a series of pitfalls over implementing regional pay, including the administrative cost of creating and monitoring new salary structures, and an attempt by the Ministry of Justice to bring in regional pay scales that has since been scaled back - although the department still pays staff according to regional zones. It acknowledges advantages to regional pay including giving employers a degree of autonomy over wages that allows them to recruit and retain staff. However, IDS warns that setting localised pay rates harbours a number of potential pitfalls including the "cliff effect" where employers in some regions will suffer a recruitment drought because workers will choose jobs in a neighbouring region with better pay. Citing an example in the previous decade, the report states: "The Metropolitan police significantly increased the combined London allowances they paid to recruit and retain staff but neighbouring forces swiftly began to lose officers who would commute and work for the higher-paying Met." The Labour government then introduced a "south-east allowance" to remedy the situation. The report adds that the car industry is an example of a sector where skills are the key determinant of pay, rather than geography, with IDS claiming a "great deal of similarity" in different pay levels at automotive businesses based around the UK including east London, Merseyside and the West Midlands. The report acknowledges advantages to regional pay including giving employers a degree of autonomy over wages that allows them to recruit and retain staff. It also attempts to redress recent reports that have drawn conclusions in favour of regional pay scales. Last week the Office for National Statistics reported that the pay gap between the public and private sectors had widened to more than 8%, in favour of government-employed workers, since the financial crisis began. The ONS said one of the reasons for the disparity was that staff in the public sector tended to have higher skills and be better qualified than their private-sector counterparts. However, IDS challenges these figures, stating that they exclude the £20bn in bonuses to City workers and are distorted by the inclusion of private sector workers in shops, hotels and restaurants, who account for 23% of UK employment and are on far lower wages than public sector workers. Dai Hudd, Prospect's deputy general secretary, said the report underlined the difficulties of basing a pay policy on generalised assumptions about the labour market.