The Chancellor sparked a fresh row with public sector workers after confirming that he would press ahead with local pay rates for up to six million nurses, teachers and civil servants.
Mr Osborne said he wanted to make public sector pay more responsive to local private sector pay, which he said was on average 8 per cent higher.
“We should do what we can to make our public services more responsive and help our private sector to grow and create jobs in all parts of the country,” he said.
But the TUC immediately attacked the announcement, warning it would drive down wages, particularly in the North and the Midlands.
“It’s not public sector pay rates that are stopping the private sector from creating jobs, it’s our stagnating economy, a lack of money being lent by the banks for firms to invest, and consumers who are too worried about losing their jobs to spend,” Brendan Barber, TUC General Secretary, said.
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“Picking the pockets of public servants outside London and the South East by localising pay will simply widen the North-South divide and cause more businesses to fail by taking even more money out of local economies at a time when they need all the help they can get,” he said. The Government’s evidence to the independent pay review bodies, published yesterday, said that much larger public sector pay premiums existed in some parts of the country than the 8 per cent uplift.
In Wales, for example, the pay premium over the private sector is 18 per cent, while in Yorkshire and Humber it is 13.4 per cent.
“The existence of pay premia suggests that the public sector pays more than is necessary to recruit, retain and motivate staff in some areas,” says the evidence.
“This in turn limits the number of jobs that the public sector could support for any given level of spending and diverts resources away from other ways to improve the quality of public services.”
In parts of the country the private sector has been squeezed out because it cannot match public sector wages, which are now running on average at 7.5 per cent more than the private sector. In some cases the premium is as high as 15 per cent.
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Citing data from the Institute for Fiscal Studies, the paper suggests that higher premiums are paid for secondary school teachers, police officers and paramedics, with the lowest discrepancies for firefighters and prison officers.