Macpherson: Treasury will be tougher on public sector pay

The Treasury has been “too soft” on public sector pay and needs “to be tougher” in future, Sir Nicholas Macpherson, Treasury permanent secretary, said on Monday. His director general of public spending added that in 2015-16 the new government will want to consider pay as one of its “big issues”.

By Joshua.Chambers

25 Oct 2013

Speaking at a hearing of the Public Accounts Committee (PAC), Macpherson said that the public sector wage bill has risen too high as a result of ‘progression pay’, whereby employees are given automatic pay rises. “Maybe in the Treasury we were too soft in the past, and we need to be tougher,” he said.

“The Treasury got rid of progression pay” for its own staff, he said, adding: “No wonder we’re lower paid” than other public sector organisations. It’s “frustrating”, he added, “that the people who are badly managed get the rewards.” Macpherson also revealed that Treasury staff turnover stands at 18%.

Meanwhile, Sharon White, HMT’s director general of public spending, said that while the government has set spending totals for 2015-16, one of the “big issues” the next government “would want to look at in the round is public sector pay.” She said this should cover the whole public sector, including local authorities and police.

Macpherson said that “there’s been an extraordinary shift of pay bills” in the public sector, with  local authority chief executives now earning far more than central government permanent secretaries.

He said the Treasury will “continue to look at” the problem of escalating pay bills, though he added that setting council wages centrally “would be a very centralised move towards local labour markets.”

High public sector pay is a particular problem in the regions, the permanent secretary said. “This is critical to national growth: you do not want to have a public sector that is higher paid than the private sector,” he said, pointing to the North-East of England as an example.

The hearing also revealed that 50% of the civil servants found in the Treasury’s 2012 investigation to be working ‘off payroll’, potentially minimising their income tax liabilities, are still doing so.

However, Macpherson said that “in the coming days, some sanctions will be administered, taking a form of budget cut” to those departments that have failed to move staff from contractor arrangements onto payroll.

Macpherson noted that some staff should not be brought onto the payroll – for example, temporary IT consultants – but that all contracts must now ensure that government employees pay the full rate of tax.

PAC chair Margaret Hodge said that councils are also employing staff off-payroll, adding:“It’s ridiculous, we can’t even get the data”. Last week, she told a local government conference that councils will now be accountable to her committee, and Parliament “will be able to haul you in”. On this point, said White, the communities department has “ended up in the same place as the committee. It’s very keen to have transparency, even to the point of regulating for it.”

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