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Regional pay scheme could cost UK economy billions

By Western Morning News  |  Posted: July 16, 2012

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Controversial proposals to peg public sector salaries to where a worker lives have been dealt a further blow with allegations it could sap £10 billion from local economies.

Chancellor George Osborne raised the prospect of regional pay earlier this year, prompting a backlash from many in the Westcountry who feared it would send wages on a downwards spiral.

A study funded by the TUC has concluded that there is "no economic case" for pressing ahead with the divisive measure.

Joanne Kaye, regional secretary for the trade union Unison, welcomed the report.

She said regional pay would be a disaster for the Westcountry.

"To be honest I think the Government is even beginning to realise it won't work and trying to step back from it," she said.

"The South West is a low pay area, but it is also a high cost-of-living area.

"We have done work on housing costs which shows than they are 50 per cent higher in the South West than on average.

"Cutting pay will simply force people to move away from the South West because they cannot afford to live here."

Ms Kaye said dismantling hard fought for national pay agreements in areas such as the health service was a "huge mistake".

Paying nurses, for example, different rates according to where they lived would "have a big impact on staff morale," she said.

"This would create social division and a much more divided society." The idea of regional pay rates was fuelled by an assertion that national pay structures were preventing local firms from hiring staff.

The TUC commissioned the New Economics Foundation (nef) to analyse ministers' proposals and said it found little evidence to support the Government's position.

The report said that within a worst case scenario where the pay of millions of public servants who live beyond London and the South East is brought down to private sector levels, as many as 110,000 jobs could be lost across England and Wales, and the cost to local economies would be £9.7 billion a year.

On a best case scenario, where nef assumed the Government was right and the pay of public servants was preventing private sector firms from recruiting because they were unable to match public sector salaries, the introduction of local pay rates for public servants would see the creation of only 11,000 jobs, the report found.

The prospect of regional pay has been denounced by Cornwall councillors and some local MPs. Last month, Downing Street indicated that ministers would need "strong evidence" before pressing ahead with proposals.

Pay review bodies are due to report back to the Government this week on its effect.

Helen Kersley of nef said: "The research finds no economic case for regional pay variations. Our research finds the Government's proposals are based on flawed assumptions that are not borne out in reality."

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