Public Sector Review: Dangerous precedent is set on pay

THE SHAPE of yesterday's public-sector pay awards was decided long before the Cabinet sat down to approve them last Thursday.

When Frank Dobson, Secretary of State for Health, addressed the Royal College of Nursing annual conference in April last year, he hoped that the 1999 wage deal for the nurses would be paid in one go rather than phased in to reduce its overall value.

His speech raised Treasury hackles but he had not meant to "bounce" the Cabinet or announce policy on the hoof.

However, some quick "spinning" by the Royal College of Nursing press office converted his aspiration into a firm pledge. There was no turning back. Mr Dobson did not have to threaten to resign to ensure this year's awards were paid in full from April for the first time in five years.

But he would have felt honour-bound to quit if they had been phased in. Mr Dobson is one of the Cabinet's unexpected stars, despite holding one of its most difficult jobs.

Although he could savour yesterday's good news for newly qualified nurses, he is not out of the woods yet over Labour's ambitious election pledge to cut NHS waiting-lists by 100,000.

Once it became politically impossible to stage the nurses' pay rise, other ministers, such as David Blunkett, the Secretary of State for Education and Employment, argued that the Government could not discriminate against groups such as the teachers.

So by the time the Cabinet met last week, Gordon Brown, the Chancellor, was resigned to paying the recommendations of the five review bodies in full. Making a virtue out of necessity, he described them as "affordable and right".

Although Downing Street claimed that the Bank of England's monetary policy committee would be relaxed about the 4.1-per-cent average pay rise announced yesterday, the generous package is bound to leave the self-styled Iron Chancellor looking a little rusty in the City. After ending the recent tradition of reducing the public- sector wage bill by staging the awards, it will be very difficult for the Government to put the genie back in the bottle.

When next year's public-pay settlement takes effect, we could be 12 months away from the next general election.

Although Mr Brown is adept at conjuring up extra cash, the danger is that public-sector pay will soak up much of the money earmarked for improving frontline services.

Ministers hope to square the circle by moving towards a radical overhaul of the way the public sector pays its staff. Moves towards performance- related pay for teachers, bitterly opposed by their trade unions, will be followed soon by similar proposals for the National Health Service.

Ministers want to end the system of rigid pay structures based on length of service rather than performance.

This will prove a bitter pill for health workers to swallow, and could even produce the most serious conflict between the trade unions and the Government in the lifetime of this parliament.

It will not prove easy for ministers to "divide and rule", as shown by yesterday's criticism of the big differential between the pay rise for head teachers and classroom teachers.

The Tories tried to "decentralise" NHS pay by introducing local bargaining but backed off in the face of strong opposition. So Labour will need to offer plenty of sweeteners to persuade NHS workers to swallow it.

But there is no doubt that Tony Blair intends to grasp the nettle. In a speech last week, billed by Downing Street as praising the dedication of public-sector employees, he warned that the Government may need to slaughter some "sacred cows".

He asked: "Do we need greater differentials within the public sector? Should we decentralise pay more? What are the lessons of performance pay and where else should we be using it?" Mr Blair already knows the answers, but whether the unions will accept them is quite another matter.