Welcome to the Public Works blog.

Public Works is UNISON Scotland's campaign for jobs, services, fair taxation and the Living Wage. This blog will provide news and analysis on the delivery of public services in Scotland. We welcome comments and if you would like to contribute to this blog, please contact Kay Sillars k.sillars@unison.co.uk - For other information on what's happening in UNISON Scotland please visit our website.

Thursday, 30 January 2014

Low Pay in the Public Sector

Low and falling pay is ruining people’s lives and storing up a range of problems for our future. The New Economics Foundations report Raising the Benchmark: The role of public services in tackling the squeeze on pay (commissioned by UNISON) clearly lays out the extent of low pay in Britain. More importantly the report contains important recommendations to free people in work poverty.

At least one in five workers in the UK economy earn too little to live on (less than £7.47 per hour)
• More than half of individuals living in poverty live in a household where at least one adult works
• One million public service workers are on low pay: And it’s getting worse
• Workers on low and middle incomes are experiences the biggest fall in living standards since records began
• Average workers wages have fallen by £1300 per year under the coalition government
• Those in the public sector are on average £2073 a year worse off
• The report is full of really useful detail on the problems caused by increases in the cost of living alongside wage stagnation.

There is also an excellent section on the myth of the public sector pay premium. NEF also highlight IMF research which indicates that the impact of public spending on the rest of the economy is stronger than previously thought. “This means squeezing public services wages locks us into a more fragile economic future”

• Active support at all levels of government to ensure the living wage is paid by employers across public service supply chains, directly benefiting 1 million public service workers today.
• Government to lift the pay cap, which has resulted in pay in public services falling by more than £2000 a year on average in real terms since 2010.
• Policy action by government to establish robust fair wage resolutions determining benchmarks for employment conditions across public service supply chains.
• Active support by government for collective bargaining of pay and employment standards throughout public service organisations and businesses.
• Action by policy-makers, commissioners and employers to scrap zero-hours contracts in key sectors such as social care.
• Implementation of new indicators, such as mandatory reporting of top, middle and bottom pay by employers across public service supply chains.

The report is an excellent source of information to support campaigns for improved wages in the public sector and importantly, through better public sector procurement rules, across the wider economy.

Friday, 24 January 2014

Why government claims about pay are mince

It’s not been a good week for government statistics. Police crime data, NHS waiting lists and now, daftest of all, a claim that pay is going up faster than inflation.

This is of course a UK Government spin release, not an official ONS data stream. What they have done is to argue take-home wages increased by at least 2.5% once tax cuts were taken into account. That is slightly more than the Consumer Prices Index (CPI) inflation rate of 2.4% in the year to April 2013.

This is simply a case of picking the statistics that make your case and ignoring those that don’t. Including tax cuts and not benefit cuts and taking CPI rather than RPI are the most obvious examples. Even RPI doesn’t fully reflect the increased cost of essential purchases that low paid workers have to focus on, as we have highlighted.

Labour's shadow treasury minister Cathy Jamieson got it right when she said: "These highly selective figures from the Tories do not even include the impact of things like cuts to tax credits and child benefit which have hit working families hard. Under the current government, real annual wages had fallen by £1,600 since 2010 and figures from the Institute for Fiscal Studies showed that families are on average £891 worse off as a result of tax and benefit changes since 2010".

The respected IFS also pointed out on R4 this morning that the average weekly earnings index showed wages rose, "quite a lot less quickly than inflation in the most recent months". Their own analysis suggested that, "if the recovery takes off and continues as expected, people will start to see their incomes rising by 2015... but they will be well below where they were six or seven years ago".

This is the same analysis we have seen from the Office of Budget Responsibility medium term forecasts for pay growth. Again we covered this data earlier this month.

As I set out in an article in the Scotsman, British workers have experienced the longest real wage pay squeeze since 1870. Inflation has risen faster than wages for almost 43 months. The share of the economy going on wages continues to decline. In the 1960s and 1970s, up to 61 per cent of the economy went on wages. Since the 1980s, it has never gone above 56 per cent. These small percentages make a big difference to our living standards. It is no coincidence that, for the first time, we have more in-work poverty than out-of-work poverty.

The problem for government spin doctors is that workers can read their own pay packets and supermarket bills. So they know this is just mince!

Wednesday, 22 January 2014

Jobs data in right direction but beware underlying trends

Today's improving unemployment figures are welcome, but there remains worrying underlying trends that could impact on the economic recovery.

Unemployment in Scotland has fallen to its lowest level for almost five years with the number of jobless falling by 25,000 between September and November to 176,000. The unemployment rate fell by 0.9% over the quarter to 6.4%. Employment in Scotland increased by 10,000 over the three months to November, to stand at 2,559,000. The latest figures showed an average rate of 7.1% for the whole of the UK. Just above the Bank of England's target for considering interest rate increases.

Despite this positive data we should remember that there is still along way to go. The employment rate remains below its pre-recession peak and unemployment is well above pre-crisis levels. Austerity economics has been the main factor in this dreadfully slow recovery from the recession and the personal price continues to be paid by many working people. Another indication that growth is likely to remain slow is that average weekly earnings growth, at just 0.9%, remains well below the level of inflation.

The STUC has also raised a note of caution. “Today’s release also provides reasons to be cautious about the strength of the labour market recovery. The fall in unemployment this quarter is more attributable to people leaving the labour force than to people finding jobs. The increase in full-time jobs over the last year is also disappointing with only 8,000 more created. Progress in tackling youth unemployment is painfully slow with the 16-24 rate falling by only 0.9% over the year. The Scottish employment rate remains 4.1% below its peak of July 2008 and the unemployment rate 2.4% higher. Today’s figures, while welcome, provide no cause for complacency”.

Another worry is productivity, as highlighted in the analysis by Duncan Weldon at Left Foot Forward. Output has fallen by 4.4% since early 2008 and is around 15% below the previous trend. Despite the severity of the recession unemployment rose much less than many feared, it is assumed because employers cut wages and hours rather than jobs. This means we could expect weak job growth as growth returns.

However, this hasn't happened leaving what economists call the productivity puzzle – output is still 2% below its peak but the number of people in work is higher. This means we have all generally become less productive at our jobs over the last five years or there was been some sort of change in the composition of the labour market. Needless to say, the latter is more likely to be correct. Whilst more people in are in work, they are more likely to be lower productivity jobs than in they were in 2008. Like low wage growth this does not bode well for the speed of economic recovery.

So while today's figures are heading in the right direction, we should be wary about how changes to the composition of the workforce will impact on the recovery. That has to be based on quality jobs, paying higher wages.

The real cost of the bedroom tax

The Scottish Federation of Housing Associations (SFHA) has published a report 'The Real Cost of the Bedroom Tax' that estimates a bill of almost £80m for Scottish Housing Associations and Co-operatives. 36,000 housing association tenants and 47,000 council tenants will be affected by the Bedroom Tax.

It breaks this down into tenancy management costs covering expenses such as the reallocation of homes as thousands of tenants look to downsize, unpaid rental income and legal costs which it says will amount to at least £55,264,800 over the first three years of the policy.

Communications such as advice provision, tenant surveys and newsletters were costed at £9,250,000. System changes such as staff training and updating policy, procedures and IT systems are expected to cost £14,592,800.

Maureen Watson, SFHA head of policy, said the extra cost has not been built into the business plans of its members. She said: "This will drive up rents for all tenants and increase the housing benefit bill for the UK Government.The SFHA is strongly opposed to the bedroom tax. We are continuing to make representations to the UK Government, seeking to have this unfair and incompetent policy repealed."

Monday, 20 January 2014

Unethical pension investments reflect poor governance

Scottish local government pension funds can be a force for good, but clearly not under the current governance arrangements.

Yesterday’s Sunday Herald published the result of an investigation by Rob Edwards into the investments made by Scottish local government pension funds. This shows they are supporting more than 100 big corporations blamed for damaging the climate, causing cancer and profiting from conflict.

While it is called the Scottish Local Government Pension Scheme (LGPS), one third of the membership comes from quangos, private and voluntary sector organisations. This means that among the groups backing major climate polluters is the Government's Scottish Environment Protection Agency (Sepa). Among those funding big tobacco are health groups, cancer hospices, schools and universities. Two public pension schemes are putting millions of pounds into an electronics company that makes controls for US military drones accused of illegally killing more than 400 civilians in Pakistan, Yemen and Somalia.

As I was quoted in yesterday’s article, “it is simply absurd to invest huge sums of public and workers’ money in companies whose aims are incompatible with public policy objectives.” And huge sums they are. The combined Scottish LGPS pension funds have assets in excess on £24bn.

The classic defence of these investments was trotted out in yesterday’s article. We have a ‘fiduciary duty’ to get the best return on investment. Actually the ‘fiduciary duty’ is somewhat less than clear in the LGPS. All other pension funds in the UK and in the EU, in line with the IORP Directive, invest in the sole interests of scheme members and resolve any potential conflicts of interest in scheme members’ favour. Is that how the councillors who make these investment decisions at present view their fiduciary duty – or is it to their council?

Some have interpreted the Cowan v Scargill mine workers pension decision to mean that a fiduciary has an unqualified duty to invest funds in the most profitable investment available. That is a narrow interpretation of that exceptional case and drives a short term view of investment that may not be in the long term interest of the beneficiaries. As UK government minister Ed Davey MP put it:

"As a government, we do want to see ESG issues considered in a rounded way in order to encourage responsible investment decisions... Fiduciary duties placed on pension fund trustees can be about more than maximising the bottom line. These duties require pension fund trustees to consider the best interests of the scheme beneficiaries and we want everyone to understand that."The confusion over fiduciary duty and poor investment decisions is yet another example of the bigger problem with LGPS governance that is supposed to be addressed by the Public Service Pensions Act. However, the governance sections of that Act are also confused, leading to a further round of consultation in England and here in Scotland.

The new pension governance structures should give member representatives greater influence over investment decisions together with better training and awareness for all those involved. They clearly need it!

Wednesday, 15 January 2014

Sources of additional tax revenue

Given the pressures on public spending, governments at UK and Scottish levels should want to identify some additional tax revenues. A recent IPPR report  makes a number of suggestions as to areas they might want to consider.

They give three reasons for considering additional revenues:
  • More measures to cut the fiscal deficit will be required between 2015 and 2020, and if the 80:20 ratio of spending cuts to tax increases that has applied in the current parliament is going to be maintained then there will have to be some discretionary tax increases.
  • All political parties want to reduce some taxes. For example, both the Conservatives and the Liberal Democrats are likely to pledge to increase the personal tax allowance from £10,000 to £12,500 – which means other tax increases will be required to offset this cut.
  • There are long-term demographic pressures on public spending. If we want to retain current levels of provision of health and social care for older people, revenues will have to increase to pay for them. The alternative is a significant rundown in the quality of public services in the UK in coming decades.

In Scotland, all three reasons apply irrespective of the outcome of this year’s independence referendum.

There are no easy solutions to be found in other countries. Their comparison of tax systems across OECD countries shows that the UK is a fairly average country when it comes to taxation. There are many other economically successful countries – in particular in Scandinavia – that have a significantly higher ratio of tax to GDP, but there are also countries with a lower ratio. Even in Scotland, there is little political appetite for Scandinavian levels of taxation as the White Paper shows.

The report does give some pointers as to where to start, particularly with the aim of increasing revenues in a progressive way and without causing economic damage. The report assesses the potential of three broad classes of new tax revenue:
  • less unpopular taxes, such as the frequently mentioned 'mansion tax'
  • mainstream taxes, such as changes to VAT or national insurance
  • entirely new taxes, such as taxes on wealth, land or financial transactions.
Thoughts on this issue are not restricted to the political left. Tory commentator Danny Finkelstein, recently made the case for a new ‘NHS tax’ in article in The Times. An attempt to link taxes with the most popular public service.

One solution unlikely to be favored by Finkelstein is taxing high incomes and wealth. Last Wednesday was dubbed ‘Fat-Cat Wednesday’ by the High Pay Centre because Britain’s top bosses have already made more money in 2014 than the average UK worker earns in an entire year. FTSE 100 Chief Executives are paid an average £4.3 million, equivalent to hourly pay of well over £1,000. Executive pay has increased by 74% over the past decade, while wages for ordinary workers have remained flat.

I am tempted to say that there is more than one way of skinning a cat – but that would be tasteless!


Tuesday, 14 January 2014

Job losses and an ageing workforce spell trouble for services

50,000 jobs have been lost from the Scottish public sector workforce and a further 60,000 could go by 2019. Those who are left are getting older and young people are the losers.

I have been crunching the latest workforce data published before Christmas, together with other reports and forecasts on public sector staffing levels. There are three key points to make.

Firstly, the workforce continues to shrink in total and as a proportion of the Scottish workforce. The public sector as a percentage of the total Scottish workforce has fallen to 21.5% (547,300 headcount), barely one in five of the workforce. 49,500 jobs have been lost in the public sector across Scotland since the financial crash; 4,400 in the last year. That has an inevitable impact on the quantity and quality of public services, as well as the local economy. Public sector workers spend in their community and this, together with the wage freeze, is a major cause of the slow economic recovery. The big numbers have come from local government, although proportionately colleges have been hardest hit.

Secondly, the workforce is getting older. In 2013, the average age was 44 years and four months compared with 43 years and nine months in 2009. The biggest losers are young people, with those aged under 20 falling by 25%. Those aged between 50-59 actually increased by 5%. This is creating a retirement and skills blip that is likely to get worse if job losses continue under austerity economics, as recruitment freezes keep young people out of public service. Older workers on small average pensions are less likely to retire early because they will need to work on due to living costs and the later pension retirement age. They are also more expensive to release under early departure schemes that are anyway declining. The big job losses have actually come from natural wastage.

Thirdly, a further 60,000 jobs could be lost over the next five years. This year and next the numbers will be less severe, but after that they are forecast to increase dramatically. This number is extrapolated from the OBR and IFS forecasts for the UK, taking into account job losses already inflicted on Scotland. It is always difficult to be precise with this sort of calculation, but previous forecasts have not been far off the mark. It could actually be worse, because future cuts are likely to be concentrated in revenue spending as the CPPR paper highlights, and that is before any deliberate shift of spending from capital to revenue as the Scottish Government favours.

All of this creates very special problems for the workers who are left behind, as they try to keep the plates spinning on deteriorating Scottish public services.

Wednesday, 8 January 2014

Low wages and growing debt in 2014

Many UNISON members will be anxiously counting the days towards the January pay day. In recent years this time of year has got even harder due to wages falling behind living costs. 

Few expect that 2014 will be any better; in fact the OBR forecast median weekly earnings falling some £61 a week by 2018 compared with earnings a decade earlier. A recent YouGov poll commissioned by the TUC found that just two per cent of voters say they have already benefited from the economic recovery and only a further 18 per cent expect to benefit from the recovery during 2014. Nearly 60% expect the benefits of any recovery to go to those who are already doing well. Osborne’s recent announcement on further cuts means that’s unlikely to be those delivering vital public services. The good news from this poll is that even if voters underestimate the scale of the cuts to come, they don’t back Osborne’s plan to slash services. More than half (56%) agree with the statement, “As the economy grows I want to see most or all of the services that have been cut restored”.

As Alf Young sets out is his Scotsman column, a consumer boom fuelled by spending our savings can’t last – particularly when real wages are still so low. The number of people in poverty in working families is now greater than in workless and retired families combined. 

This is reinforced by research undertaken by Aviva who found that high living costs have worn away at family savings over the last year. Some 30 per cent of families said they have less than £500 put away, compared with just 14 per cent in January 2013. The percentage of families with less than £2,000 to fall back on has also jumped from 28 per cent to 40 per cent between January and December.

Accountants BDO LLP say that despite improving economic conditions, many people are still facing up to the legacy of the credit crunch. The firm is predicting that just under 15,000 Scots will have been sequestrated (the Scottish term for bankruptcy) or taken out a Protected Trust Deed (PTD) by the end 2014.

As official unemployment figures (which ignore underemployment) get closer to the Bank of England’s target, the prospect of an increase in mortgage rates kicks in. Citizens Advice has predicted that more than a million homeowners across the UK will be at risk of defaulting on their mortgages and losing their properties in the wake of even a small rise in interest rates. The Resolution Foundation reckons that figure could be as high as two million if interest rates rise to 5%.

In November, the Bank of England said household debt had reached a record level of £1.43tn – meaning the average adult in the UK owes more than £28,000. While most of this is rising mortgage debt - credit card borrowing and other unsecured lending, which had fallen since the recession, have also started to increase.

The IFS has also pointed to the generational wage cut. The incomes of adults born in the 1960s and 1970s are "no higher in real terms than those of their counterparts when they were the same age a decade ago". Ian Bell in The Herald also reminds us that big companies have been doing very well, mostly because of the cheap money issued by government on our behalf. Companies that, “just don't choose to pay decent wages these days, or offer job security, or pensions, or even to meet their own tax bills”. 

If there is any good news in this litany of woe, it is that most commentators and economists now recognise the problem of low wages and the damage it is causing to the economy. Even the CBI leader has accused employers of keeping too many people in minimum wage jobs and failing to pass on prosperity.

This was a cause previously limited solely to trade unions and left leaning think tanks. In 2014, through the ‘Worth It’ campaign and elsewhere we need to build on this growing understanding.

Monday, 6 January 2014

Poll shows Scots prepared to pay more for local services

A new Opinion Survey undertaken by MORI on behalf of Scotland’s first Commission on Strengthening Local Democracy should give politicians some confidence in addressing how to pay for local government.

The key findings include:

Two out of three Scots would be willing to pay more in Council Tax if they could be guaranteed that the money raised was to be spent on local services such as schools and care for older people.

More than seven in ten people feel that one size does not fit all in terms of service delivery and that local services should be delivered in ways that meet the needs of local people in their area.

Less than half of people think that Councils have enough money to deliver the services that they think their community needs.

This shows that the public understand that decent services have to be funded properly and fairly. The current Council Tax freeze is simply a sticking plaster on reform and worse, it is a regressive measure that favours the wealthiest households.

UNISON Scotland has published a paper on how to pay for local government that can be viewed here.