London Weighting (Hansard, 29 July 1988)

§ Mr. Jacques Arnold (Gravesham)

I should like to raise a subject of considerable interest to my constituents, the effect of London weighting on the public services in the adjacent areas. I am becoming increasingly concerned at the blight effect of London weighting on those areas which fall just outside the limits of London weighting.

My borough of Gravesham, in the expensive commuter belt of the south-east, is located at one remove from outer London from which it is separated by the borough of Dartford. Although there are many outstanding aspects which make Gravesham an exceptional place in which to live in terms of housing costs, and the price of food and other necessities, it has little to distinguish it from Dartford or the outer London borough of Bexley. Yet those who work in the public services in my borough are paid less than their opposite numbers in Dartford or Bexley, and indeed, get equal pay with those working in the low-cost living areas of the north. That is brought about by the bewildering hotchpotch of London allowances and assorted fringe allowances paid by the different services locally on top of national pay scales.

Someone working for the NHS in the Dartford and Gravesham district would get a fringe allowance of £149 per annum, a figure established by the Whitley council in 1981 and frozen since. Someone working in the Bexley borough of the DHA would get £718. On the other hand, teachers in the same district find that they sort the sheep from the goats. Teachers a couple of miles away in Swanscombe or Southfleet get a fringe allowance of £333 per annum, but their colleagues in Gravesend or Northfleet get nothing.

A fireman or local government worker will receive no extra allowance for working in Gravesham. An inner-fringe allowance is given if one works in Dartford. Even more odd, a fireman at the Thameside station, which covers large areas of Dartford, receives no extra allowance because the station is located in Northfleet.

Gravesend is located 24 miles from Westminster, yet staff are paid no extra allowance. Thurrock lies immediately across the River Thames, stretching downstream from Gravesend. An allowance is given in Thurrock because local government boundaries stretch greater London further out into Essex than into Kent.

This is a farcical state of affairs. This bureaucrats' beanfeast is not only having a devastating effect on valued public service employees in Gravesham but, even worse, is creating scores of unfilled posts for teachers, nurses and other vital people.

This year, north-west Kent has had 86 teaching vacancies. Despite vigorous advertising, 23 of the posts were still unfilled last week. Even headships of schools have proved difficult to fill, and the Gravesham association of head teachers puts that down to the lack of adequate financial incentives to work in the area.

Locally, the Health Service illustrates the problem even more graphically. Frequently candidates for jobs opt out and go to London in search of high allowances, and others leave their jobs. Out of a group of 12 Irish nursing staff recruited recently, 10 have left for employment with London health authorities. In the local health district, an average of 30 nurses per year from the mental illness unit are lost, largely to Bexley health authority.

866 To overcome those problems, the public authorities are resorting to complication and subterfuge. They are introducing a proliferation of restructured salary scales, merit payments and improved benefit packages, with wider distribution of company cars, private medical insurance and other sweeteners. That is largely futile when competing with private-sector solutions, notably bank staffs' London allowance of £3,000 per annum.

Is it not time that we got rid of this bureaucratic tangle in the public services and took an axe to national pay bargaining? Government and local government units should be funded to be able to do the job and in the light of local personnel and other costs of the area. The unit should shop for staff, goods and services at the local going rate for their specialisation. This would get rid of the artificial scarcities that create service backlogs and Health Service waiting lists.

If the Government find that approach too radical or, at least, premature, urgent steps should nevertheless be taken to redress the current acute problem. I ask my hon. Friend the Under-Secretary of State for Employment to get together with Whitley council, LACSAB and other employer bodies to find a short-term remedy. This should be the immediate extension of outer-London allowances for public services to the borough of Gravesham. Without doubt the care of our patients, schoolchildren and people demands nothing less.

§ The Parliamentary Under-Secretary of State for Employment (Mr. Patrick Nicholls)

I thank my hon. Friend the Member for Gravesham (Mr. Arnold) for giving us an opportunity to consider the problems caused by the effect of London weighting. It will not come as a surprise to my hon. Friend that I do not have a remedy to all these ills carefully tucked up my sleeve. My hon. Friend has given me a further opportunity to give the Governments attitude, which to a great extent will reinforce some of the points that my hon. Friend made.

London weighting is a topical and important feature of the labour market. As my hon. Friend implies, the subject goes wider than London and brings into focus labour market pressures throughout the south-east. At present, those pressures are competitive and symptomatic of our thriving economy. Despite an increase in the civilian work force, unemployment in the south-east has fallen from 8.5 per cent. in 1986 to its present level of 5.6 per cent., and it is continuing to decrease. Unfilled vacancies in the region have risen by about 30 per cent. over the past two years.

We are debating the problem of success and how to manage that success effectively.

I am aware that the boundaries drawn by employers to define their London weighting zones vary widely. That will inevitably cause anomalies. However, it would be wrong to set down standard geographical definitions which should be used throughout the public services. These must be determined by individual employing authorities according to their own assessment of labour supply and demand in the particular labour markets in which they operate.

Let me stress at the outset that all pay and conditions of employment, including London weighting or any other allowance, and the areas in which those allowances are paid, are a matter for employers and employees, or their representatives, to determine. The Government do not intervene and nor should they. It is only the parties to 867 agreements who can decide what they can afford, and need, in order to recruit and retrain staff with the right skills and experience in the areas concerned.

The role of the Government is to establish a sound economic framework within which business can flourish and to remove barriers that stand in the way of competition and labour market freedom.

It is precisely for that reason that the Government abolished the former London weighting indices, which were produced by my Department until 1982. Those indices annually updated the inner London allowance of £400 and the outer London allowance of £200 recommended by the Pay Board in 1974.

The whole concept underlying that formula was one of cost compensation. Its function was to establish and maintain statistical information on the additional cost of travel, housing, wear and tear and so on, incurred by staff working in London compared with the rest of the United Kingdom and therefore to suggest the level of London weighting which it would be appropriate to pay each year.

It also defined inner London as the area within a four-mile radius of Charing Cross and outer London as the remainder of the then Greater London council area. The indices were widely followed by employers in both the public and private sectors, generally with little regard to their own particular needs or circumstances.

The formula also embedded the concept of London weighting as a uniform allowance payable at the same level to all staff from the most junior to the most senior and as a separate and distinct element in their pay packet.

In announcing the discontinuation of the London weighting indices in October 1982 my right hon. Friend the Member for Chingford (Mr. Tebbit), then the Secretary of State for Employment, said: London differentials are a matter for employers and employees to determine according to the circumstances of each firm or industry. But, in the Government's view, the indices encourage negotiators to place too much emphasis on the need to compensate employees for the additional costs of working in London and too little on the need to set rates of pay which the employer can afford, and which are sufficient to recruit, retain and motivate employees in London".— [Official Report, 19 October 1982; Vol. 29, c. 100.] Since that announcement, employers have increasingly moved away from determining London weighting by reference to cost compensation alone. Allowances are being set more and more in line with the imperatives of the labour market and the needs of the business. There is now considerably more diversity both in the level of allowances and the zones they cover.

My hon. Friend the Member for Gravesham referred to the clearing banks and building societies, which have increased their inner London weighting to £3,000 per annum and introduced new geographical allowances of £750 throughout the whole of "Roselands"—the so-called "Rest of South-East".

That has clearly intensified pressure on other employers competing in those labour markets, in London and adjacent areas, and not least on the public services. That approach has not been widely emulated for other groups.

I will shortly say more about ways in which the public sector is tackling those problems. First, the debate gives me a chance to say why I believe that employers should increasingly question the nature and purpose of London weighting in its present form.

868 As I said earlier, we are dealing with a problem which now goes well beyond London itself. Improved communications—for example, with the M25 and the electrification of railway lines into East Anglia—have greatly improved access to the capital.

Secondly, the problems of recruiting and retaining staff are not only about money. It is right of course that relative pay levels should reward, among other things, the skills which employers need to compete efficiently. Otherwise, individuals would have no incentive to acquire the right skills, and firms would have no incentive to make a cost-effective training investment. An ever-increasing spiral in the level of London weighting payments to compete for a diminishing supply of Labour with the right skills and experience would, in the end, be self-defeating.

I am not convinced—and nor is the Confederation of British Industry—that employers have yet understood that those policies offer a more permanent and cost-effective approach to meeting skill demands over the medium term.

The massive demographic changes to which my right hon. Friend the Secretary of State for Employment has drawn wide public attention recently will also affect London and the south-east as much as other parts of the country. Meanwhile, the Government are making a huge investment in training through the existing YTS scheme and the new employment training programme. Our spending on training is up from £458 million in 1979 to a planned £3 billion in 1989–90. But employers themselves will need to look equally radically at their own approach to recruitment and to their policies for training and retraining.

Finally, as far as pay is concerned, the traditional nature of London weighting payments has been very broad brush. The same level of allowance is typically paid to all workers in the relevant zone, irrespective of their seniority, qualifications or experience. A newly recruited clerk straight from school usually receives the same allowance as an experienced senior manager. This can be costly and ineffective. Labour shortages are often confined to particular occupations or to particular areas.

I said earlier that the Governments role was to establish the conditions to enable businesses to compete effectively. I believe that the Government can also set an example as an employer. In the Civil Service we are making pay more responsive to labour market needs by targeting resources at specific problems. Additionally, along with this year's London weighting settlement, the Government and the unions have agreed to consider the whole question of the future of London weighting payments.

Finally, we have introduced new long-term pay arrangements for about a third of civil servants which incorporate a greater degree of flexibility enabling pay to vary according to both performance and local labour market conditions. Similar arrangements are being discussed with the unions representing most of the remaining Civil Service grades. For example, I know that some local authority employers in the south-east have responded to market pressures in a variety of ways including incentive recruitment packages targeted at particular occupations, by restructuring jobs and regrading posts, and by job share and other schemes to attract back experienced staff. Training and retraining is also playing an important part in their approach.

Those are all examples of the way in which the public services are responding selectively and flexibly to the 869 problems of localised recruitment and retention difficulties instead of by increasing or spreading existing London allowances indiscriminately. I think that their approach is a responsible and effective answer to current labour market constraints. As to the longer term, I believe that the way forward is for employers and employees in all parts of the economy increasingly to develop payment systems that are generally more fiexible and better attuned both to performance and market conditions. In that way, pay can respond more individually and appropriately to the imperatives of local labour markets, be they in London, Liverpool, Llandudno, or, indeed, in my hon. Friend's constituency of Gravesham. The present concept of London weighting might well then become irrelevant.

870 I came to the House today with no easy solutions. I hope that I have given my hon. Friend some idea of where I believe the argument will go. I also note from our previous dealings on other matters that were of concern to my hon. Friend that if this is the first time that he has introduced this concern to me, I have every reason to suspect that it will not be the last.