7. EFFICIENCY AND PRODUCTIVITY
7.1.6 What would be the savings to the NHS
of a pay freeze, and cuts in public-sector wages of 3%, 5% and
10%, bearing in mind that wages cannot be reduced below the national
minimum wage? What savings would these cuts generate if they were
constrained so that no pay levels were reduced to below 120% or
150% of the national minimum wage? (Q85)
Answer
1. Calculations are based on the NHS pay
bill which covers:
— Non-medical staff on Agenda for Change
(AfC) terms and conditions whose pay is determined following recommendations
from the independent NHS Pay Review Body but are currently in
the second year of a three-year pay deal.
— Medical staff whose pay is determined
following recommendations from the independent Doctors' and Dentists'
Review Body.
— Very Senior Managers (VSMs) who are either:
— employed on the VSMs Pay Framework (those
in strategic health authorities, special health authorities, ambulance
trusts and primary care trusts), whose pay is determined following
recommendations from the Senior Salaries Review Body, or
— employed on local arrangements in NHS
trusts and NHS foundation trusts and whose pay is determined locally.
2. The NHS pay bill is calculated from the
NHS Information Centre for Health and Social Care census: NHS
Hospital and Community Health Services Non Medical Staff England,
(for numbers) and NHS trusts financial returns and NHS foundation
trusts annual accounts (for pay).
Savings to the NHS of a pay freeze
3. Savings can only be calculated by comparing
with an alternative. For staff on AfC the Department has calculated
the saving by comparing with the alternative of the pay uplift
for all envisaged in the third year of the three-year AfC pay
deal (2010-11). For other groups there is no figure to compare
with therefore the Department has given details of the value of
each 1% of the pay bill for medical staff and VSMs.
4. The three-year deal for NHS staff on
AfC pay, terms and conditions provides a pay settlement of a general
uplift of 2.25% for 2010-11 plus structural changes to Band
5 and higher increases for the lowest paid. If the pay of
this group was frozen at 2009-10 rates rather than implementing
the general uplift of 2.25% from the 2010-11 settlement,
the savings would be about £740 million.
5. There is no comparative 2010-11 settlement
for medical staff and NHS VSMs. However, for these two staff
groups, it is estimated that each 1% of pay settlement in 2010-11 is
worth about £100 million to the total pay bill.
The effects of cuts of 3, 5 and 10% with
no pay point falling below the National Minimum Wage (NMW)
6. To calculate the effects of cuts of 3,
5 and 10%, the Department has again assumed this is against
the alternative of 2.25% general uplift as in the third year of
the three-year pay deal for AfC staff; and the Department gives
savings for medical staff and NHS VSMs based on four alternative
scenarios: no increase; 1% increase; 2% increase; and 3% increase.
Based on these assumptions, cuts in the total NHS pay bill of
3, 5 and 10% might save the amounts presented in table
85. None of these cuts would bring anyone in the NHS below
the NMW.
The effects of cuts of 3, 5 and 10% with
no pay point falling below 120% or 150% of the NMW
7. Recalculation of 2009-10 AfC salaries
to reflect reductions of 3, 5 and 10% allows identification
of the first spine point at which the AfC salary would be higher
than 120% of NMW (£13,609) or 150% (£17,011) and therefore
become the new AfC minimum, as follows:
— 3% cut £13,928 (spine point
4) to exceed 120% NMW, or £17,200 (spine point 11) to
exceed 150% NMW.
— 5% cut £13,641 (spine point
4) to exceed 120% NMW, or £17,249 (spine point 12) to
exceed 150% NMW.
— 10% cut £13,671 (spine point
6) to exceed 120% NMW, or £17,546 (spine point 14) to
exceed 150% NMW.
8. The amounts saved by the 3, 5 and
10% pay cuts must be offset against the costs of increases required
to uplift pay for the lowest paid staff to meet the 120% or 150%
NMW thresholds. Depending on the option chosen, this would affect
between about 27,000 and 145,000 staff and the Department
estimates that would reduce potential savings by between 1 and
10%.
Table 85
THE EFFECTS OF CUTS OF 3, 5 AND 10 PER
CENT WITH NO PAY POINT FALLING BELOW THE NATIONAL MINIMUM WAGE
|
| |
| | £ million
|
|
| Savings: settlement scenarios
| Pay cuts
|
| | 3%
| 5% | 10%
|
|
| 2.25% and 0% | 1,284
| 2,140 | 4,280
|
| 2.25% and 1% | 1,287
| 2,145 | 4,290
|
| 2.25% and 2% | 1,290
| 2,150 | 4,300
|
| 2.25% and 3% | 1,293
| 2,155 | 4,310
|
|
| Source: |
| Workforce Directorate Analysis Team, DH.
|
|
