Civil Service Pay (Hansard, 24 July 1991)

§ Mr. Norman Lamont

It is important that pay systems in the public sector should make a regular and direct link between a person's contribution to the standards of service provided and his or her reward. The Government have a direct responsibility as employer for over 550,000 civil servants. I would therefore like to explain how I see the pay systems in the civil service developing. Pay has an important part to play in raising the quality and improving the responsiveness of public services—a key theme in the citizens charter.

For most staff in the civil service other than those covered by the Top Salaries Review Body, pay is negotiated between the Treasurey and the recognised trade unions, mainly on the basis of pay agreements concluded over the past few years. The existence of such pay agreements, and their provision for negotiation of annual settlements on the basis of the interquartile range of private sector pay settlements, has provided useful stability in settling civil service pay. The agreements have also provided an important assurance to staff that pay will be determined fairly and within a clear and transparent framework, linked to their performance and career development. The Government continue to attach importance to these principles.

But any organisation must be able to adapt to changing needs. The Government now want to introduce more flexible pay regimes for the civil service, both nationally and locally.

The new pay system must meet the needs and objectives of departments and agencies; they must be demonstrably beneficial to the citizen, fair to the employee and linked to the delivery of high-quality public services; and they must be affordable. This means developing pay structures which reward good performance and penalise bad.

Progress has already been made in providing for pay flexibility, and further progress can be made in pursuing greater delegation, within the existing agreements. But the Government have concluded that the agreements as they 605W stand do not provide a framework that is fully capable of meeting the needs of the 1990s. It has informed the unions that it wishes to negotiate changes to them.

I therefore propose to introduce three new elements into civil service pay structures. The first is to put in place a range of forms of performance-related pay in order to achieve a closer link between performance and reward both for individuals and for groups of staff. This will be an important means of securing the objective of improving the quality of public services, which is at the heart of the citizens charter programme. Over time, performance will come to determine a larger proportion of the pay bill without performance pay becoming a disguised way of providing unacceptably high increases in the pay bill.

The second is further to enable responsibility for pay bargaining to be delegated to civil service departments or agencies, to allow them wider discretion in relation to their pay and grading regimes. Alternative pay and grading structures will be approved where they are expected to produce value-for-money benefits greater than through centrally controlled negotiation.

The third is to give an option to those departments and agencies for which such extensive discretion is not appropriate to negotiate for themselves flexibilities of their own within the total of the overall central pay settlement agreed by the Treasury.

The Government believe that in appropriate cases greater delegation of pay and grading arrangements can secure better value for money from the pay bill, increasing productivity and providing better services to the citizen as taxpayer. This will be a key consideration when the Treasury approves delegated pay and grading systems and increased flexibilities. The Government also believe that in the public sector, as in the private sector, there should be transparency about pay costs, including the effects of delegation. Those departments and agencies which do not at present do so will in future publish figures for the pay bill and for employment in the latest financial year in departmental reports or in agency accounts as companies are already obliged to do by the 1985 Companies Act.

The work which the Civil Service does is of the highest importance for the prosperity of the nation and the welfare of its citizens. The proposals I have announced today will secure for the civil service future pay arrangements which suit the widely differing nature of its work, while enabling links to be maintained where these are useful. They will establish a proper relationship between pay and performance throughout the service. They will continue to allow informed collective bargaining; secure the confidence of the public in the system and of staff that their pay will be determined fairly; and enable the Government to ensure that a higher standard of service is delivered to the citizen while reconciling their responsibilities for the control of public expenditure with their responsibilities as an employer.