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9 Jan 2008 : Column 107WH—continued

It is, he said,

However, there are problems with this argument, including the amount in question. We are talking about £30 million to £40 million. I fail to understand how that amount of money, which is relatively trivial in the overall Government budget, can have the dramatic effect of increasing inflationary pressure.

Keith Vaz (Leicester, East) (Lab): I thank my hon. Friend for raising this very important subject and for relying on the evidence given by the Select Committee. He makes a point about saving money. Ministers have suggested that that money could be used to recruit x number of additional police officers. Does he not agree that that is virtual-reality stuff? We will not get additional police officers from that £34 million. It is money that has already been budgeted for that should be paid out.

John McDonnell: I am not aware of any police authority that will use that money for large-scale additional recruitment. I have been involved in police budgeting for nearly 25 years. I was the chief executive of the Association of London Authorities and the Association of London Government who negotiated the police settlement with the Metropolitan Police and central Government. From my experience and from police authority reports, it looks as though any savings will be transferred into balances. They may be used in future years, but most probably to cushion potential problems, such as declines in grants from the Government. Therefore, this is not about substituting police pay for police officers.

I have to say as an aside that, if the Prime Minister is concerned about inflationary pressures and he identifies £30 million to £40 million as having a major inflationary impact, I am amazed that he made no comment over the Christmas period about City bonuses, which have ranged from £6 billion to £13 billion annually over the past few years. They are having an inflationary impact on our economy, particularly in London and the south-east.

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Mr. Jim Devine (Livingston) (Lab): I congratulate my hon. Friend on this important debate. I am sure that he shares my view that it is obscene for individuals to receive bonuses of £50 million and £60 million each, as was reported in the press just before Christmas. That distorts not just house prices in the south-east, but society as well.

John McDonnell: It puts into context the concerns that have been raised by Government about the inflationary pressures of this relatively trivial amount, and it demonstrates a misjudgment by the Prime Minister about the nature of the inflationary pressures for the future.

Daniel Kawczynski: We all realise that the inflationary pressures are a red herring. My understanding is that, in Scotland, the police have been given their full pay award. I presume that the Scottish Parliament is equally concerned about inflationary pressures.

John McDonnell: Let me not incite the Scottish debate at this stage; others may want to do so at a later stage.

Another argument is that paying the award on 1 September would set a precedent and open the floodgates for other public sector claims. To be frank, the precedent was set anyway. Some hon. Members will remember that the decision was made last June or July to give the Army its full pay settlement and not stage or defer it in this way. The Prime Minister, then the Chancellor, sought to defer the payment to the Army, but the then Prime Minister intervened and resisted attempts by the Treasury to defer that payment. Therefore, there is a precedent. Will it open the floodgates? Other public servants have either settled or have had a pay award imposed upon them. This pay round has neared its end and is unlikely to incite others to make extortionate pay demands, as some Ministers have suggested.

As regards the contribution to inflation, I do not think that the evidence bears out the argument that public sector pay incites inflationary pressures. A report by an independent body was published last year for the Council of Civil Service Unions. It drew attention to the fact that wages follow inflation and not the other way round. It cast doubt on whether public pay has any significant impact on inflation. No link was identified between public sector pay demands and inflation in the wider economy. In fact, it drew upon evidence from the Bank of England, which said that it would be concerned about inflationary pressure only if earnings across the economy exceeded 4 per cent.

Mr. Angus MacNeil (Na h-Eileanan an Iar) (SNP): Given the correct and cogent argument that the hon. Gentleman is making, does he feel that the Scottish Government have done the right thing in awarding the police their full pay award, as was expected throughout the UK?

John McDonnell: I do not want to incite a Scottish debate on the matter. This is not a comment on Scotland, but when arbitration and a settled system of negotiation has worked well for nearly 30 years, I would expect anyone who wants future industrial relations in this
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country to be harmonious to abide by that process and therefore to honour agreements and arbitration.

I can quote other sources on inflationary pressures. The Senior Salaries Review Body drew upon the evidence provided by the Bank of England that said that inflationary pressures from the public sector would need to be taken into account only if they went over 4 per cent. The Government’s own Office for National Statistics demonstrated that inflationary pressures at the moment do not come from pay but from increasing housing costs, petrol and oil price rises and the increasing cost of household goods, energy and food. It does not cite increases in public pay itself. It is therefore surprising that the Prime Minister and the Chancellor have tried to argue that inflationary pressure is coming from the relatively trivial sum of £30 million, saved from a deferred police pay settlement.

With a background in economics, I have to say that there is another argument. When we are looking at a downturn, we should not be looking at depressing demand. When we are looking at a prospect of increased unemployment and an unwillingness to spend because of high levels of personal debt and insolvencies, what is needed is steady, consistent and reasonable wage settlements that assist the economy by maintaining consistent demand within the economy.

The problem of the coming period is not the inflationary but the deflationary pressures that might arise. Several of us feel that the Prime Minister, the Chancellor of the Exchequer and others might be fighting the battles of yesteryear, rather than those of this year, which is one of deflation, not inflation.

Why have the Government acted in this way? What are the real reasons for their actions? What evidence and sources can we draw on? One source is a leaked memo from an adviser to the Home Secretary entitled “Police Pay—The End Game”, which was cited in the press some time ago. It was written by Mr. Stephen Kershaw, the director of the police reform and resources directorate, on 29 June. He wrote:

that is, pay the full award—

On the evidence of that memo, serving police officers have been caught up in negotiations between the Home Secretary and the Treasury about the Home Office budget. In such instances, we would normally expect the Prime Minister to intervene as an arbiter to ensure fair play, consistency in Government policy and the full payment of the arbitration award.

The other evidence on which we can draw is the attitude of the Government themselves—we can draw on briefings and statements from Ministers and the parliamentary Labour party office to find out what has happened to their attitude to police pay. The argument in those briefings and statements is that the police are paid well enough and have, in fact, done too well in recent years, and reference is made to their having received wage increases of 39 per cent. over the past 10 years. I have looked in detail at those figures, however, and they are misleading. They refer to increases in basic pay, not average increases. Annual surveys of housing
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and employment show that serving police officers and sergeants have suffered a detriment in recent years of anything up to 16 per cent.

Most of us can explain anecdotally what has happened to the ability of serving police officers in our constituencies to achieve a decent standard of living. I am of course proud of what the Government have done to improve wages, but serving police officers in my constituency will not get into the housing market, because the average price of a home is anything between six and 10 times their salaries. Many of them are therefore unable to live in the very communities that they seek to serve.

The Government have also argued that recruitment is not a problem, so why should they pay the police the full award? They argue that there are six applicants for every job, but that does not recognise our long-term recruitment needs, the need for good-quality, well-motivated recruits or the fact that we need to maintain morale to retain decent staff.

Mr. John Leech (Manchester, Withington) (LD): I congratulate the hon. Gentleman on securing the debate. As he rightly said, the issue is not recruitment, but retention. A lot of good police officers who have served for many years have got to the end of their tether and now want to find other forms of employment, because they no longer feel valued. If we lose those experienced officers, we will have to recruit and train new officers, and a big cost is associated with that. Retention is a big issue in all police forces.

John McDonnell: That is a valid point, and the Government must take on board the fact that retention is largely based on people’s morale, how they feel about the job and how they are treated by their employer. Anything that undermines that morale or breaks the relationship of trust between employee and employer undermines our ability to retain staff in the jobs that we need them to do.

The real reason for what has happened over the past six months is that serving police officers have been caught up in what we learned this week is the Prime Minister’s strategy of imposing a long-term pay policy on the public sector. He decided to send an early message to the police, and thereby to the Prison Officers Association, the Public and Commercial Services Union and all the other trade unions in the public sector, that a three-year pay cycle and pay policy would be imposed on them. There is a calculated strategy of imposing a pay policy by taking on the police first. That fits in with the political strategy.

It has been calculated that the only way to cope with the economic downturn that we now face is to reduce public expenditure and public sector pay in the hope that we can get the economic cycle back in sync with the electoral cycle. The strategy is this: control wages in 2008, attempt to stabilise the economy in 2009 and hope that there are signs of growth in time for an election in 2010. That is a flawed strategy in a period when we have deflation, rather than inflation; it will alienate people at the beginning of the cycle, and we will never restore their morale and confidence. Police officers rightly feel that they have become political footballs in a much larger long-term political strategy. It is no coincidence that this dispute has occurred at the same time as the three-year wage settlement strategy has been announced.

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There is a cost to the Government’s strategy. It will alienate a body of public servants who have served the Government well by reducing crime, delivering public safety and being creative and flexible in responding to the policies that the Government have introduced. The Government’s strategy has angered officers who regularly put themselves in harm’s way to protect our community and it is undermining morale, destroying trust and creating anger where we should have a sympathetic response.

There has been much talk over the past year about the military covenant between the Government and those in the military who serve us, but there is another covenant: the policing covenant. Police officers accept that they will have to put themselves in danger on occasion. They present themselves on duty whenever they are ordered to, and there are restrictions on their private lives and on their families. They are prevented by law from going on strike and joining a trade union, and they are accountable for their actions both on duty and off. In return, the covenant says that the Government should treat those officers fairly when it comes to their pay and conditions and should respect their views. Successive Governments have abided by that covenant over the past 30 years, and it has been widely supported in the community. As a result of the Government’s intervention in this pay round, however, the covenant has been broken and put at risk. If we are not careful, the whole system could sustain long-term damage.

I sought this debate to urge the Government to think again. It is not too late to reopen the dialogue with the representatives of the Police Federation and others, and there may be an alternative approach. Let me make this offer for the Justice trade unionist group: we are willing to offer our good offices and our services to bring all sides together to discuss the opportunities for compromise, so that we can overcome the problem and seek a way forward. I appeal to the Government to take up that offer in the best interests of police officers, the police service and their own standing. I ask them not to put at risk the good will of the police service. Even at this late stage, they should show some understanding, concern and creativity and work with us—if necessary, on a cross-party basis—to resolve the problem that we face.

Several hon. Members rose

Mr. Edward O'Hara (in the Chair): Order. Colleagues who catch my eye might wish to note that the winding-up speeches must now start at 3.45 pm.

3.19 pm

Sir George Young (North-West Hampshire) (Con): I congratulate the hon. Member for Hayes and Harlington (John McDonnell) on his good fortune in securing this debate and on the moderate way in which he made his case. Before Christmas, he and I, along with half a dozen colleagues, met the Police Federation, and we agreed to request this debate. I am therefore delighted that his name came out of the hat. When the Minister responds, I hope that he will not use the abundance-of-recruits argument as a defence. If that argument were applied to ministerial salaries, he might find his standard of living somewhat depressed.

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In Hampshire, there is real anger with the Government. The chairman of the Hampshire branch of the Police Federation wrote to me on 17 December:

He went on to refer to

As a former member of the police parliamentary scheme, I have seen at first hand what officers do, and I believe that they are entitled to every penny of the proposed increase. When Parliament removes from employees a right that is available to nearly everyone else, it must ensure that those employees are fairly dealt with by their employer, particularly if the employer is the Government, who are in turn accountable to the House of Commons.

Let us examine briefly the arguments deployed against paying the settlement in full. The Government Departments on the official side said that they did not support the proposal on the grounds that

However, there are exceptions to the 1.9 to 2 per cent. ruling. Hospital doctors will get a flat £1,000, worth 3 per cent. for the newly recruited. Permanent secretaries are going to get a flat 2 per cent. next month. Larger rises of 9.2 per cent., as the hon. Member for Hayes and Harlington mentioned, were awarded to about 13,000 of Britain’s lowest paid squaddies, in a move applauded by military chiefs, who had campaigned for that. A further 6,000 members of the armed forces will benefit from rises of more than 6 per cent. All other ranks and officers will get a 3.3 per cent. increase, with the exception of the most senior. I mention that not to begrudge those groups their increases, but simply to make the point that 1.9 per cent. is not a hard and fast rule, and there have been many exceptions.

The other leg of the argument is the consumer prices index inflation target. The impact on next year’s council tax bills will be exactly the same, whether the payment is staged or not. It is necessary to meet the full increase, so there will be no saving in the impact on the retail prices index. Nor does staging affect the headline rate, which remains the same; it just becomes the headline a few months later. Nor will this year’s council tax bill be reduced retrospectively by any saving. The money will simply be spent on something else. As the hon. Member for Hayes and Harlington said, most authorities have pencilled in the increase, and have the resources to pay it, so the argument that somehow it would push up costs does not hold water. If it is true that there was a trade-off in the public expenditure negotiations along the lines of “If you, the Home Office, show restraint on pay, we will give you extra money and another part of your bid,” that blows out of the water any deflationary argument that the Government might deploy.

Mr. MacNeil: We are essentially talking about inflationary pressure. Does the right hon. Gentleman agree that the unexpected extra £3 billion that the Chancellor is pulling
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in from fuel duty is a greater inflationary pressure on society than the £30 million he might give to police in England and Wales?

Sir George Young: The hon. Gentleman makes a good point: the rise in the fuel price has given the Chancellor money for which he did not budget, so to that extent resources are available that he can deploy in that context, with little impact on his original forecast. I think that the Government have the worst of both worlds. They have betrayed an important group of employees for zero impact on inflation.

My final point is that the Government have made a political mistake. Previous Home Secretaries—particularly the somewhat larger ones—would have had a confrontation with the Chancellor of the Exchequer, and would not have agreed to the demand to stage. That would then have escalated into the Cabinet. At that point I suspect that Tony Blair and the Cabinet would have sided with the Home Secretary; the increase would have gone through and the Government would have avoided the pickle that they are in. We are paying the price for the Prime Minister still believing that he is Chancellor, and the absence of substantial counterweights in the Cabinet. My view is that if the present Home Secretary had dug in her heels and threatened to resign over this she would have won. She would have been unsackable in the first few weeks after her appointment had she made an issue out of it. The Government have made a political and economic mistake that I believe they will live to regret.

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