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The response from local authorities has varied. Some, like Sunderland, bit the bullet and sought to implement the agreement as swiftly and fairly as possible. The cost to local taxpayers so far in Sunderland is £15 million and could be tens of millions more if the worst comes to the worst. Sunderland has been advised that, on a worst case scenario, costs could touch £50 million. Some other local authorities have tended to bury their heads in the sand in the hope that it will all go away. One north-east local authority initially adopted a policy of paying out only in
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response to successful tribunal claims. So far it has shelled out nearly as much as Sunderland on a much smaller number of claims.

Across the north-east, the total cost of claims could be as high as £300 million, but it is not just a north-east problem—far from it. The west midlands is said to be facing claims of nearly £1 billion, the north-west £740 million, London £123 million, and the south-west £100 million. Nationwide, the bill is estimated to be as high as £2.7 billion, but could eventually be higher. What is to be done? Emphatically, I am not suggesting that the Chancellor be asked to write out a cheque. No sensible person would do that. It has been suggested that the cost could be capitalised and paid off over 40 or 50 years, but that is a very expensive option and, in any case, insufficient to deal with a problem of this magnitude.

My hon. Friend the Minister has recently announced a modest change to local authority accounting rules that would allow local authorities to defer making provision for equal pay liabilities. That is welcome but, as I am sure that he understands, it does not begin to address the magnitude of the problem. It has also been suggested and I understand recently agreed by Ministers that, at least as far as school caretakers and dinner ladies are concerned, the cost could come from the substantial surpluses that some schools retain. That may help some authorities, but it will inevitably give rise to the charge of unfairness, because some schools have surpluses and others do not. In any case, the majority of those involved are not school employees.

None of that, however, addresses the real problem, which is that existing agreements are unravelling and the pit is potentially bottomless. We appear to have reached a situation in which, however much we agree with the principle of equal pay for equal work—as we all do—it is apparently impossible to move from an allegedly discriminatory system of pay to a non-discriminatory one. Indeed, I draw my hon. Friend’s attention to the comments of Mr. Justice Elias, who presided over the tribunal hearing an equal pay claim involving Redcar and Cleveland borough council. He said:

In my view, and that of a growing number of local authorities, the only way out of the mess is to change the law to allow for a moratorium on claims for a transitional period, during which agreements reached in good faith would be allowed to take effect without being unpicked by the likes of Mr. Stefan Cross. I understand that the counsel’s opinion that has been obtained indicates that that would be feasible. Ministers might also wish to consider whether it would be possible to legislate to reduce the time during which compensation could be paid retrospectively. I am hoping to hear that the Minister and his colleagues have reached similar conclusions and are, even as I speak, trying to identify a suitable legislative vehicle. A failure to do so would risk meltdown.


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6.10 pm

The Minister for Local Government (Mr. Phil Woolas): I congratulate my hon. Friend the Member for Sunderland, South (Mr. Mullin) on securing a debate on one of the most—if not the most—important issues facing local government. Before I outline the actions and policies of the Government, may I start by addressing one of the charges that he made at the beginning of his speech? He suggested that the problem is not recognised by the Government, but I can assure him that that is not the case. It is probably the single most important issue in my in-tray, as it has been for some time, and it is being addressed across the Government. Nor is it, as he rightly said, simply—if “simply” is the right word even in this context—a northern or a north-east problem. It also affects not just local government.

I concur that this is one of those debates that is of huge importance to local government and its employees. However, I suspect that it will not be reported significantly by the media, perhaps because the subject is too complicated for them. The issue does not get the column inches that it deserves, given its financial importance. I am also grateful that my hon. Friend has given me time to set out the big picture.

The Equal Pay Act 1970, which came into force in 1975, allowed women to claim for the difference if they could establish that a male comparator doing the same job, or work of equal value, was receiving higher pay. The measure made a significant contribution towards the fall in the gender pay gap, which was 37 per cent. in 1970, but is now at 17 per cent. However, we recognise that pay discrimination is only one of the causes of the pay gap. Of course, the Government are fully committed to equality for all in the work place, as elsewhere, and the principle of equal pay for work of equal value. We have come a long way from the situation when the Equal Pay Act was introduced. At that time, equal pay seemed like a dream. It was not so long before that time that it was a rule in the civil service that women were obliged to resign from work when they got married.

Local authorities, as employers, had agreed nationally with trade unions a process for establishing pay equality through the single status agreement in 1997 by the time of the 2004 local government pay settlement. The agreement drew together two strands. The first was a demand that manual workers on basic pay should work the same hours as white-collar staff. It had been a long-standing grievance of the trade unions that manual workers worked 39 hours, but white-collar staff worked 37.

As well as single status, the agreement brought in a movement towards equal pay for equal value. That followed several case law precedents under EU directives and the Equal Pay Act to ensure not only that a women could not be paid less than a man for the same job, but that jobs that were predominantly held by women, but were judged to be of equal value to those predominantly held by men, would be paid on an equal basis, and vice versa. Indeed, I spoke this afternoon to one of the lead negotiators, who now lives and works in Johannesburg in South Africa. He told me that the question asked was why a person pushing a brush should be paid less than a person pushing a pen—or, as he put it, why someone frying a chip should
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be paid less than someone operating a chip. It took seven years to negotiate and it was believed to be the largest collective bargaining agreement in the UK’s history. The key point was that the unions chose to negotiate, not to litigate, in order to allow councils to plan their finances—and good for them.

To make it real, councils were and are expected to conduct job evaluations across the scope of their organisations and review their pay arrangements so that they match pay to the value of the work undertaken. The diverse spread of occupations in local government and the concentration of women and men in different types of work mean that establishing equal pay for work of equal value is a challenging process for the employers and the individuals concerned.

I should emphasise, as did my hon. Friend, that central Government were not involved in those negotiations, as the employers are in local government. It is thus very much for individual local authorities, as employers, to ensure that their pay arrangements meet statutory requirements. I understand that the local government employers’ organisation has been advising authorities for some time on how to ensure pay equality and has been recommending preparations, including setting aside reserves, which should be made to ensure that the transition can be managed affordably.

As pay arrangements are the responsibility of individual employers and as they have agreed a framework process for implementing local pay reviews, this is not directly a matter for central Government intervention. I understand my hon. Friend’s point when he said that the impression may be given or held that the Government are seeking to wash their hands of this affair—but we are not. We recognise the importance of this issue to the public and hundreds, thousands and millions of employees, let alone the local councils themselves. My point is simply that the Government are neither the employers nor responsible for negotiating this particular set of agreements.

Local government is not yet in the position where it, as an employer, or its work force or we would like it to be, but we recognise that many authorities are making progress towards pay equality. A third of local authorities had, by mid-2006, implemented local pay reviews based on job evaluation, and we expect that number to have increased since then. The vast majority of the remainder are in the process of negotiating or implementing such reviews.

I have said—and I repeat—that this is not directly a matter for the central Government. However, I am aware—and, of course, the Government are aware—that the cost and complexity of addressing equal pay issues in local government has, in response to developments in case law, become more challenging in recent years. We are not, contrary to what my hon. Friend suggested in a previous debate, in denial about the impact that this has had on local government. As I say, apart from the financial quantum itself and the future of local government finance policy, this is the most important item in my portfolio. We recognise that it can involve authorities in making some difficult management decisions and I have no doubt that there are some authorities for which the problems seem quite intractable, but that is not a reason to hand the problem to central Government.


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Let me put this issue into the wider context of funding for local government, devolution and pay. All acknowledge that Government central funding for local government has increased substantially and that no Government could be held responsible for a collective agreement to which they were not privy. It is important— especially if one espouses devolution to local government, as we do—that local councils manage their own pay pressures. It is for the Local Government Association and the local government employers’ organisation, which conduct the pay negotiations, to consider the impact of equal pay pressures when negotiating local government pay settlements. It is for individual authorities as employers to ensure that pay bill pressures arising from work force changes or pay drift are carefully managed.

Having established the problem facing local government within its wider context, I will move on quickly to the recent dialogue in which we have looked at how we can work together on this issue. Following recent judgments by employment tribunals, the LGA and others have recently made representations to the Government about the cost of back pay in respect of equal pay, and they have proposed a number of legal and financial solutions. Of course I have met the LGA and trade unions to hear at first hand about those issues.

The Government are currently considering a range of options that increase authorities’ flexibility to manage their equal pay pressures. It is important, however, that we do not slow down the process of implementing equal pay. One of the proposals made by the LGA is to increase the capitalisation limit, which constrains local authorities’ ability to borrow to fund one-off back payments. Of course, we need to protect the Chancellor’s golden rule that long-term borrowing should be used only to finance capital expenditure. In fact, that limit was raised to £236 million, including £6 million brought forward from 2005-06, for the current financial year. Applications for capitalisation from local authorities have been considered alongside competing bids, and on 31 January the formal capitalisation directions were issued.

As I announced, and as my hon. Friend mentioned, in my recent written answer to his parliamentary question—I commend him for being the hon. Member who has put this issue on the agenda—I noted that we have recently consulted on an amendment to the capital finance regulations. Although not solving the problem, that change would help to allow local authorities greater flexibility in managing their financial pressures relating to equal pay. Under the current accounting rules, authorities are obliged to make financial provision for anticipated liabilities, as soon as they can be reliably estimated, rather than during the year in which they must be paid. The amendment would exempt equal pay back pay from that accounting rule for a limited period and allow authorities that wished to take advantage of that relaxation greater flexibility in managing their financial liabilities.

Mr. Mullin: The technical changes that my hon. Friend is announcing are very welcome, but they do not address the core issue. As he rightly said, I have left him a lot of time, and I hope that he will get around to
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my two suggestions for legislative change. If, by any chance, he is not keen on either of them, perhaps he can suggest an alternative.

Mr. Woolas: I thank my hon. Friend, who rightly pushes his point, and I will answer his question of course.

Let me take this opportunity to state my gratitude to a number of local authorities—including my hon. Friend’s local authority, which has played an important role in this issue—and other organisations for the thoughtful points that they have made about the proposed regulation change to which I have just referred. I am pleased to announce that our intention is to make that amendment in the current financial year. It is proposed that the new regulation will apply until the end of March 2011.

The Government are fully committed to equality in the workplace, as elsewhere, and local government is making progress towards pay equality, within the framework that employers agreed with trade unions in 1997 and 2004. Local government, both collectively and as individual employers, is responsible for setting pay. Clearly, employers are responsible for meeting their statutory requirements. The issue should be seen in the wider context of a need to plan ahead.

It is, of course, the case that the recent GMB v. Allen ruling in Middlesbrough has affected the issue dramatically. Indeed, the trade unions and the LGA argue that it could jeopardise the ability of employers and unions to reach collective agreement in the interest of the greater good. I agree with them. Like them, we await with anticipation the outcome of the appeal by the union, and the Government do not rule out legislation to protect the ability of employers and representatives to reach agreements if that is desirable.

It is, however, case law that presents the problem as well. On the crucial question of back pay, if there were a sample solution—there is not—such a route would not necessarily satisfy the policy that my hon. Friend seeks. First, there is the important point that many local authorities have already addressed the issue, and I must be fair to them and their taxpayers. Secondly, there is the very real point that it is not clear whether, even if desirable, a legislative solution would be possible.

The Government are therefore reviewing urgently legal opinion on this matter, and I am grateful to those local authorities that have submitted their own opinion, but I caution against individual councils seeking opinion—as ever, it is lawyers who benefit the most. I recognise, of course, that addressing the requirement for equal pay is a difficult and costly
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process for local government, but it is not a new pressure. As I said, the pay legislation was introduced in 1970 and came into force in 1975. Many authorities have already implemented local pay reviews, and we are listening to the points made to us by the Local Government Association and others, following the recent employment tribunal judgments, to which my hon. Friend referred, in respect of the action against the trade unions, and the action against local councils and employers. To sum up, I thank my hon. Friend for raising this important issue.

Mr. Mullin: If we have to resort to legislation—the Minister says that he has not ruled that out, and it is hard to see any alternative to legislation—what is his time scale?

Mr. Woolas: As ever, my hon. Friend asks the pertinent question. The timetable is dictated by when the opinion is made available to us. I understand that the employment tribunal appeal is to be heard on 12 February, and it could be some time before the result of the appeal is known. Any timetable that might involve a legislative route would be dependent on the outcome of the appeal. That is why I say that we await the outcome of the appeal with great anticipation. The timetable, on which my hon. Friend pushes me, is dictated by that decision, and by the wider review of the legal opinion. As I say, although we have not been inactive on the matter, it is not clear at the moment whether legislative routes would attain the objective that we agree is desirable.

The important point to emphasise and to record in Hansard is that the Government do not rule out a legislative route, because we understand the point that my hon. Friend makes so powerfully about the unintended impacts of the collective bargaining agreement, which has been detrimental to some. We recognise the importance of the issue, and that the problem is not confined to one region. We are prepared to legislate if that is desirable, both in terms of the protection of collective agreements and in itself.

The difference between equal pay and equal pay for equal value has to be recognised. The Government believe that it would be desirable to achieve equal pay for equal value in incremental steps, and that is inherent in the idea of collective bargaining. That approach would protect employees across the piece, and allow us to move towards ensuring a fairer, equally paid work force. It would be wrong to say that there are simple answers, and my hon. Friend acknowledged that. We recognise that the matter is a significant problem facing local government and its employees.

Question put and agreed to.

Adjourned accordingly at twenty-eight minutes past Six o’clock.


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