Would Liz Truss’s plans for regional pay boards have saved £8.8 billion?

Conservative leadership candidate and Foreign Secretary Liz Truss pledged yesterday, in a press statement issued on Monday 1 August, to “introduce regional pay boards tailoring pay to the cost of living where civil servants actually work, saving up to £8.8 billion per year”.

After criticism of the proposals from Conservative MPs and opposition parties, Ms Truss has since walked back the policy, with a spokesperson stating: “There will be no proposal taken forward on regional pay boards for civil servants or public sector workers.”

The spokesperson also claimed that Ms Truss’s proposals had been subject to “wilful misrepresentation” in the media, and that “current levels of public sector pay will absolutely be maintained”.

In the detail of her proposals, Ms Truss didn’t commit to pay cuts for existing civil servants or public sector workers—in fact, she explicitly said that the changes would only apply to new recruits, and they would have to be rolled out “over a number of years”. However, the £8.8 billion figure her team claimed the policy could save is based on proposals for changing the pay of “all public sector workers”, which would either involve cutting or freezing existing public sector salaries or phasing in the changes over a very long period. 

What was the policy Ms Truss proposed?

Currently, most pay rates for public sector workers, including civil servants but also others such as teachers, nurses and police officers, are decided nationwide by government ministers based on the recommendations of pay review bodies. 

As a result public sector workers performing the same role are usually paid the same regardless of location, though in the capital London weighting is paid to many public sector workers to account for the higher cost of living.

Under Ms Truss’s proposals, decisions on public sector pay would have been put in the hands of regional pay boards, with rates decided based on the cost of living in respective regions. This means that civil servants and public sector workers in poorer regions would have been paid less than their counterparts in wealthier regions.

In a press release, Ms Truss’s team claimed: “By introducing regional boards, civil servant pay can be adjusted in line with the actual areas where civil servants work, saving billions. This will also avoid the public sector crowding out the private sector in places where private business just can’t compete with public sector pay.”

In that press release it wasn’t made clear that the policy would apply to the wider public sector as well as civil servants, or that it would not affect existing public sector salaries. 

But another press release circulated by Ms Truss’s campaign, as well as comments made by ally Jacob Rees-Mogg, specified that the policy would apply only to new public sector recruits, starting with the civil service. She claimed the £8.8 billion figure referred to “the potential savings if the system were to be adopted for all public sector workers in the long term”.

Where does the £8.8 billion figure come from?

We’ve not seen any source given by Ms Truss or her team for the £8.8 billion figure. We’ve asked how it was calculated and haven’t yet had a response. 

But it appears to be based on calculations by the Taxpayers’ Alliance, included in a 31 July publication proposing the establishment of regional pay boards. According to figures first published by the campaign group in 2020, bringing regional pay for public sector workers in line with pay for similar private sector roles “could save around £8.8 billion in 2021-22 if realised fully”, or £1.7 billion in the same year, reaching the full saving by 2025-26.

In a statement published after Ms Truss withdrew her proposals, the Taxpayers’ Alliance claimed the savings could be achieved without outright pay cuts, and instead through a combination of pay freezes and lower rates for new staff.

However a number of policy experts have challenged these savings estimates.

In a Twitter thread, Ben Zaranko of the Institute for Fiscal Studies said the £8.8 billion figure quoted by the Taxpayers’ Alliance appeared to be “the estimated saving from eliminating the public-private pay premium in all regions”, based on figures from a 2012 Policy Exchange paper, adjusted for public sector wage growth. However he added “that premium has fallen substantially since 2012, so any savings would now be a lot smaller”. 

Mr Zaranko told Full Fact that while he couldn’t say precisely how much less the policy would save if implemented now, given the public-private pay premium has fallen from about 15% in 2012/13 to less than 7% now, the true saving could be less than half as much as Policy Exchange’s original 2012 savings estimate of £6.3 billion.

The Taxpayers Alliance says it calculated its savings estimate by dividing the original £6.3 billion figure by total public sector pay in the relevant year to create a “saving ratio”, which it then applied to projected public sector pay bills published by the Office for Budget Responsibility.

The 2012 Policy Exchange paper proposed cutting the pay of existing public sector workers who were deemed “overpaid” and boosting the pay of those workers deemed to be “underpaid”. Unlike Ms Truss’s proposal, it was not a plan for harmonisation of pay rates over the period of many years, nor only for new staff.

According to Mr Zaranko, applying these proposals only to new recruits, as Ms Truss suggested, “would take decades to be rolled out in full”, in contrast to the Taxpayer Alliance’s scenario of a five-year implementation period.

What about claims this would have meant huge pay cuts?

Prior to her withdrawing them, Ms Truss’ plans were criticised by some Conservative politicians, including Tees Valley mayor Ben Houchen, who tweeted: “There is simply no way you can do this without a massive pay cut for 5.5 million people including nurses, police officers and our armed forces outside London.” 

A spokesperson for Ms Truss’s leadership opponent Rishi Sunak claimed her plans would see “millions of nurses, police officers and armed forces personnel” lose £1,500 per year.

Mr Sunak’s campaign later confirmed to Full Fact that this figure was calculated by dividing the £8.8 billion saving promised by Ms Truss among the roughly 5.7 million public sector workers in the UK. As such, while it gives a crude average figure based on the total estimated savings, it’s not a reliable representation of the impact of Ms Truss’ proposals if they only applied to new recruits, did not affect the whole country and would have been rolled out over a number of years.

Image courtesy of Chris McAndrew