Scrapping national pay bargaining in the public sector would save more than £6 billion a year that should be used to create hundreds of thousands of new jobs, an influential think-tank said today.
Nationally-set pay bands mean that the average public sector worker is paid 7 per cent more than their private sector counterparts – rising to almost 14 per cent when pensions are taken into account – according to a report published today by the right-of-centre Policy Exchange.
The think-tank called for public sector pay levels to be brought into line with their local private sector equivalents – saving £6.3 billion that could be spent tackling local unemployment and creating 288,000 jobs.
Chancellor George Osborne raised the prospect of local pay agreements in his March Budget, but there have been concerns about the idea and signs that the Government is backing away from the move.
In its report – entitled Local Pay, Local Growth – Policy Exchange argued that the current system was unfair to public sector workers in areas with higher costs of living, prevented schools and hospitals in those areas from attracting the best staff, and wasted public money that could be used to help lift the economy out of recession.
Savings from a move to locally-agreed pay should be ring-fenced to fund additional public expenditure in the areas affected.
Matthew Oakley, co-author of the report and a former Treasury adviser, said: "The current system of national pay bargaining is bad for the economy and bad for public services. Regional pay bargaining is not the answer.
"Moving to a system where local public sector employers can decide how to negotiate salaries with employees will enable top performing public sector workers to be paid more, increasing productivity and improving public services.
"Our proposals would mean that not a single penny would leave poorer regions.
"All the money would be ploughed back into reducing unemployment and boosting growth in the poorest parts of the country."
The prospect of regional pay deals have been staunchly opposed by unions in the South West as well as by some of the region's Liberal Democrat MPs.
Opponents say ending the current national deals for teachers, nurses and other public sector workers threatens to strip tens of millions of pounds from the region's economy at the worst possible time.
Supporters, on their other hand, argue higher salaries for state employees in low-paid areas make it harder for private sector firms to recruit staff.
Liberal Democrat MP for St Austell and Newquay, Stephen Gilbert, who has led a campaign in Parliament to block the pay proposals, has said it would be "nothing more than a race to the bottom in pay and conditions".