Establishing the terms and conditions of employment in the public sector HR Management

For much of the period following the Second World War, public sector employment relationships were distinctive, and designedly so. Managers were held accountable through political and administrative mechanisms, rather than through the market, and links between management practice and public policy were viewed as obvious and entirely legitimate. Public organisations were required to exemplify ‘model employer’ practice.

Employment procedures were prescribed explicitly, sometimes by statute, and were subject to informal ministerial influence. Collective bargaining and consultation with trade unions were well established, where national bargaining forums sat atop complex local and regional structures setting uniform national pay rates and conditions of service. Since 1979, there has been some considerable reform of this process, with successive Conservative governments intent on privatisation, cost-cutting and the introduction of market forces into service provision.

Contemporary Labour governments have broadly supported many of the Conservative ideas and reforms but within a new framework of a ‘modernising’ agenda which recognises the need for increasing investment if service provision is to be improved and recruitment and retention problems addressed. While demonstrating more sympathy towards the notion of public sector provision, the current government is determined to continue to foster increasing cooperation with the private sector through the private finance initiative (PFI) and public private partnerships (PPP).

To explore these issues in more detail, this section will outline the ‘golden era’ of public sector development, consider how this has changed in recent years and discuss current government initiatives regarding pay and conditions for public sector employees.

  • The ‘golden era’: Morrisonian organisations and model employment

That which until recently was recognised as the public sector developed in the immediate postwar period. Between 1945 and 1950, the Labour government took into public ownership a number of basic industries, including coal, steel and the railways. Together these accounted for approximately 10 per cent of the country’s total productive capacity (Dearlove and Saunders, 1984: 268).

Services that were to constitute the welfare state, including health and social security, were established under public administration and expanded rapidly. By 1959, almost a quarter (23.9 per cent) of the labour force worked in the public sector (Fairbrother, 1982: 3). Over the next 30 years this diverse range of enterprises, utility industries and services was gradually restructured more or less according to the principles of public corporations established by the Labour politician, Herbert Morrison.

During this ‘golden era’, there was little doubt that employment practice in the public sector was different from that prevailing elsewhere in the economy, and designedly so.Morrisonian principles were informed by two policy objectives: first, to ensure that the priorities pursued by key industries and services were consistent with macroeconomic, industrial and social policy; and second, to provide within this framework some autonomy for professional managers.

These large, integrated organisations were therefore managed through independent industry boards that had responsibility for day to- day operational matters. But these boards were accountable directly to the relevant ministers, who were also empowered to give ‘general direction’ (Pendleton and Winterton, 1993). Differing contexts meant that the model could not be implemented uniformly, and some variation was apparent. The principles by which management operated, however, were shared widely.

An ethos of public service, founded upon accountability, impartiality and commitment to communitarian values, was fostered deliberately and became a primary motivating factor for employees (Pratchett and Wingfield, 1995). In the interests of equality of treatment, uniform standards of product or service were a priority, and departments would be deployed to ensure consistency across the organisation. Guaranteeing probity in the public interest required complex internal control systems and hierarchies of management and committee structures.

The public sector as a whole was also assigned a particular industrial relations mission: to be a ‘model’ employer and implement ‘a range of practices which today constitute good management’ (Priestly Commission, 1955, cited in Farnham and Horton, 1995: 8). The state sector’s role in macroeconomic policy was important in this regard. Though the depth of the postwar consensus can be exaggerated, commitments to full employment and the welfare state structured the programmes of both of the key political parties for as long as they could be combined with economic growth (Hills, 1990).

The public sector was assigned a key role in job creation, ‘mopping up’ underemployment created by restructuring in the broader economy. Expanding public sector employment enabled managers to offer meaningful job security. Market notions of efficiency were generally alien to the public sector, and public expenditure planning mechanisms permitted public employers to pass on increasing labour costs to central government (Winchester, 1983).

‘Model employer’ practices also implied a range of procedures intended to set an example to organisations across the economy, which included promoting collective employment relations. Union growth was consequently stimulated directly (through the promotion of trade union membership) and indirectly (through the involvement of unions with collective bargaining). This growth continued in the 1970s as union membership expanded alongside the growth in public sector employment.

Given the strategic importance of public industries in particular, great emphasis was also attached to the collective involvement of employees as a means of identifying and resolving grievances, and thereby avoiding potentially costly disruption. The requirement on public enterprises ‘to consult with organisations which appear to them to be representative’ was legally specified in their respective nationalisation acts (Kelf-Cohen, cited in Pendleton and Winterton, 1993: 3).

Elaborate, formal and bureaucratic systems for negotiation and consultation, often referred to as ‘Whitleyism’, also developed across the public services. Created with the brief to establish viable industrial relations systems following the end of the First World War, the Whitley Committee advocated centralised bargaining through joint industrial councils with a view to securing ‘cooperation in the centre between national organisations’ (Whitley Committee, cited in Clegg, 1979: 31).

Consequently, industrial relations were marked by a significant degree of centralization but there were important variations in this general picture (Fogarty and Brooks, 1986). For example, traditions of local bargaining in some of the nationalised industries (such as coal, docks and steel) remained entrenched long into the ‘golden era’, and local government employers came to full national bargaining relatively late in the day (Kessler, 1991: 7). Such centralisation was also evident in influencing the determination and negotiation of terms and conditions, and cost constraints, and their ramifications for the management of the public sector, were more prominent features of the ‘golden era’ than is often acknowledged.

Ministerial responsibilities for containing public expenditure generated a compelling interest in the outcome of collective bargaining. As early as the 1950s, government departments intervened to veto agreements in health and public transport that potentially set precedents that were deemed undesirable (Crouch, 1979; Thornley, 1994). So, model employer principles developed during this period resulted in relatively coherent frameworks for bargaining and consultation and a prominent role for trade unions in the management of change.

It is important to maintain an appropriately nuanced perspective, however, and exhortations to ‘good management’ were laced intermittently with cost pressures backed by ministerial pressure. While public employment was secure, low pay and discriminatory employment procedures remained characteristic of large parts of the public sector (Thornley, 1994). Proclaimed aspirations to industrial harmony were pursued selectively and, increasingly, with only moderate success. As ambivalent as these pressures may have been, both they and their effects rendered public sector employment relationships distinctive throughout the Morrison era.

  • Summary

The scope and depth of public sector activity grew dramatically during the ‘golden era’ from the 1940s to the late 1970s. Principles established by Herbert Morrison underpinned management structures and behaviour. A key feature was the need to ensure some degree of congruence between the goals of particular public organisations and espoused public policy. Organisations were highly integrated, characterised by bureaucratic procedures, and managed by professional specialists subject to general direction by the relevant government ministers with a clear emphasis on centralised bargaining and collective industrial relations

  • The Conservative era and market reform

From 1979 to 1997 the focus shifted to market-based approaches. Expansion was halted by public expenditure constraints and then reversed, as ‘rolling back the frontiers of the state’ became a priority. Public enterprises were transferred to the private sector, and market mechanisms and competitive pressures were introduced into the remaining public services. Organisations were fragmented as distinct roles were created for service purchasers and providers.

The deliberate diffusion of ‘model employer’ practice has become a less prominent feature of public policy. Conservative ministers from 1979, and the New Right thinkers who influenced them, were inclined to view trade unions as an impediment to the effective operation of markets. At a more pragmatic level, they also recognised that public sector unions had become a potent source of opposition to government policy, and had contributed in no small measure to the downfall of the 1974–79 Labour government.

Therefore, promoting national collective bargaining and trade union organisation became less of a priority. More important perhaps, the very notion of a single set of employment principles was not attractive to policy-makers, who regarded the ability to tailor terms and conditions of employment to specific trading contexts as the hallmark of effective management. During the period of market-based reform, the emphasis shifted from promoting model employment to providing the space in which managers could assume the right to manage.The extent to which this philosophy was reflected in changed management practice is a different matter.

As argued in the previous edition of this text (Colling, 1997), government’s interest in employment levels and pay remained undiminished and constrained the extent to which decision-making could be left entirely to local actors. Paradoxically, promoting market pressures in these and other areas often required government to intervene more determinedly rather than stand back. Alongside measures promising greater discretion, therefore, initiatives were developed to test performance and to set targets for change and improvement.

Reform of the centralised bargaining and consultation structures, characteristic of the Morrison era, has been one of the most tangible indicators of changing employment practice. After 1979, market orientations fostered an approach to pay determination founded on aligning pay with local labour markets and affordability considerations at the level of service providers. Decentralisation was thus the primary motif of Conservative governments throughout the 1980s and 1990s. It was pursued pragmatically (rather than strategically) however, and was held in tension by a contending desire to maintain central control of the overall pay bill.

The growth of indexation and independent pay review mechanisms played a significant role in reducing the scope of collective bargaining. Where they have been introduced, pay issues are decided through either predetermined formulae, in the case of indexation, or the deliberations of a panel following the submission of evidence from managers, unions and government. While some argue that the latter amounts to ‘quasibargaining forums’ (Winchester, 1996: 10), the removal of formal collective bargaining, and notionally thereby the threat of strike action, was a common element.

Although it was reserved initially for judges, doctors and the armed forces, other significant occupational groupings were incorporated gradually. The fire and police services were surprisingly late additions at the end of the 1970s, and schoolteachers, nurses and midwives were added subsequently. One-third of public sector employees were no longer affected by collective pay bargaining by the end of the period of market-based reform (Bailey, 1996: 136).

Throughout the 1980s, centralised bargaining structures came under informal pressure through changes to public sector financial procedures. The switch to cash rather than volume planning required employers to balance increases in pay against levels of service. From the late 1980s, managers in the NHS used the discretion available to them to vary starting salaries and job descriptions for ancillary and administrative staff (Grimshaw, 1999).

The creation of market relationships, such as those stemming from competitive tendering, provided additional impetus. Decisions about the allocations of service contracts were based primarily on price, of which labour costs are usually a substantial element. Quests for savings prompted service managers locally to redesign work organisation and terms and conditions of employment (Colling, 1993).

Ad hoc adjustments to employment packages became common, irrespective of whether or not the work was retained by public sector employers. In local government, for example, reform of bonus payments and working hours disoriented pay and grading structures, increasing pay inequalities, particularly between women and men (Escott and Whitfield, 1995; Colling, 1999).From the early 1990s attempts were made to extend decentralised bargaining across and up grading structures to include professional and technical staff whose pay and conditions remained subject usually to national negotiations. This required a more direct approach to reform.

The 1992 White Paper People, Jobs and Opportunity promised to For the public sector, which was founded upon the notion of national bargaining, this move to decentralisation was disorienting. Undoubtedly, key aspects such as performance and financial targets remained centralised but devolution of budgets, managerial authority and collective bargaining exposed weaknesses in union effectiveness. This was not the case throughout the sector, however; for example, in local government with some experience of decentralisation, the shock was not as great as elsewhere. Given the general funding constraints, however, bargaining was impeded by the lack of resources and the consequent requirement to balance pay increases against so-called ‘efficiency’ savings (redundancies, service cuts).

The government’s determination in this area is further illustrated by the escalation of pressure on NHS trust managers. Local managers, aware of the considerable opposition of the unions and professional associations, sought initially to innovate through job redesign and to maximise the grading flexibility offered by existing national agreements rather than negotiate locally for professional groups (Bach and Winchester, 1994).

Following the 1992 election, however, burgeoning entrepreneurial spirit was alvanised by increasingly explicit exhortations from ministers and the NHS Executive and, after a protracted stand-off with the unions, the 1995 pay settlement eventually permitted some element of local bargaining for health service staff, with the exception of doctors. Decentralisation and market-based reform contributed significantly to changing expectations surrounding public sector pay.

Comparability gave way to affordability, and earnings growth considerably fell behind that of the private sector (Elliott and Duffus, 1996: Winchester, 1996). They also generated difficulties of their own, confusion within pay structures, and the inequalities that emerged subsequently (Escott and Whitfield, 1995) arguably did little for morale, and provided the basis for substantial legal challenges. The Acquired Rights Directive and its UK variant, the Transfer of Undertakings (Protection of Employment) Directive (TUPE), provide rights to consultation and prohibit changes to pay and conditions when staff are transferred from one employer to another (e.g. from the public sector to a private contractor).

Equal pay legislation makes it illegal to pay different rates to women and men when they carry out similar work, work rated as equivalent by a job evaluation scheme, or work that is of equal value in terms of effort or skill. Though the extent and security of such protections have been far from total (Napier, 1993; Dickens, 2000), unions became adept at selecting test cases to inhibit or reverse market-driven reform of pay systems, and won some notable victories in both domestic and European courts (Colling, 2000). The threat of further proceedings underpinned subsequent bargaining strategies, particularly in health and local government, where potential equal value cases became intertwined with union demands for coordinated reviews of pay and grading.

  • Summary

The election of successive Conservative governments during the 1980s and 1990s saw the introduction of far-reaching reform into the public sector. There was a marked shift from the centralised, ‘model employer’ policy to that which focused upon market forces and cost constraints. This stance, combined with the government’s evident hostility towards organised labour, substantially reduced the influence of trade unions upon the employment issues. The uneven implementation of Conservative policies, however, led to a degree of confusion and problems in achieving desired outcomes regarding cost savings, productivity and performance. To some extent, these problems are now being addressed by the current Labour administration.

  • New Labour and the modernising agenda

A ‘modernisation agenda’, developed and pursued by successive Labour governments since 1997, reveals a ‘third way’ approach to managing the public sector based on combining elements from planning and market-driven strategies. The denigration of public services has ceased, and their contribution to national economic and social priorities is acknowledged to a greater degree. Some market-driven pressures have been removed, including the internal market in health and CCT in local government, and organizations have been reintegrated.

Explicit target-setting has reintroduced elements of planning by ensuring compliance with national policy priorities within and across public services. Although important aspects of policy towards the public sector have changed, current emphases on employment flexibility and performance targets can be clearly identified as key aspects of previous Conservative government policy. So, the ‘model employer’ model has shifted somewhat from its dominant market focus; the critical notion underpinning current reforms is now that of ‘performativity’.

This modernisation agenda of the Labour government articulates a desire to reintroduce coordination into public service employment. Fundamental reviews of pay, grading and bargaining arrangements are in progress for many parts of the sector (Cabinet Office, 1999). For example, in health, comprehensive local reviews have aimed to extend functional flexibility further within and across a broader range of occupational groupings (NHS Executive, 1999).

Also, the ‘Agenda for Change’ proposals outline a simplified pay structure for the NHS with the intention of enabling greater flexibility and addressing persistent equal pay discrepancies. Given the complexity of this new plan, however, full implementation is doubtful before 2005 (Bach, 2002). Regarding the Civil Service, existing performance-related pay (PRP) schemes have been reviewed and reformed and the Makinson Report (2000) has recommended a shift to team bonuses which will also be linked into target attainment.

In education, headteachers were assimilated on to new scales incorporating performance elements in 1999 and pay review body recommendations that classroom teachers should be included in this scheme from 2000 have been acted upon. The majority of teachers applying to this scheme (93 per cent) were successful in achieving awards, which, in essence, were pay awards linked to performance and attainment. So, continuities from the previous period of market-based reform are notable, with commitments to link pay with performance sustained and, indeed, intensified:

As the first Comprehensive Spending Review progressed through 1999, the Chancellor announced higher than expected general settlements for health and for education, but pressure on pay was sustained. New money was tied explicitly to funding new capital projects, such as improved information technology, and meeting previously established service targets, such as hospital waiting lists. Interventions by the Prime Minister made it clear that government did not expect to see pay levels increasing at the same rate as general expenditure unless they were ‘linked to results’ (Peston and Timmins, 1999: 1).

After re-election in 2001, the second public spending review (2001–2004) committed the government to growth in expenditure of almost 4 per cent per year, with a considerable proportion of this still focused upon health and education. The government’s intent is to demonstrate clear improvements in the level of service and also to address recruitment and retention issues through selective improvements in pay and conditions.

However, accompanying increasing expenditure is increasing pressure from the Treasury to meet set targets regarding service provisions and performance standards, a task which will present considerable challenges to public sector employers, managers and employees. An apposite example of such pressures is the Fire Service dispute which continues at the time of writing. The Fire Brigades Union (FBU) made an original pay claim of 40 per cent based on the deterioration of firefighters’ pay over many years in comparison to such as the police force, where the government had sanctioned considerable investment in an attempt to expand recruitment and encourage retention.

This process was not painless, with David Blunkett, the Home Secretary, enduring a number of acrimonious encounters with the Police Federation before reaching agreeable terms in 2001. The government has clearly intervened in the Fire Service dispute, preventing the employers settling in November, 2002 with a 16 per cent pay deal. Rather, in keeping with the modernisation agenda, they are determined that the service should recognise the recommendatios of the Bain Report (2002) which linked pay issues to the reform of working practices.

The FBU, while articulating support for modernisation, reject the Bain Report which they argue will lead to redundancies and deteriorating conditions of employment – and the government is seemingly determined that any increases in pay above 4 per cent must be linked to productivity and flexibility. In terms of other areas of public sector pay, Bach (2002: 331) notes, ‘For the third year in succession, from 1 April (2002), the government implemented in full recommendations of the pay review bodies for more than one million public-sector workers . . .

Headline pay increases clustered around 3.7 per cent’. By agreeing to pay review recommendations, public sector pay is now making some gains in regard to the private sector as the government accepts that if critical recruitment and retention issues (for example, in teaching, health and police services) are to be addressed, comparative pay issues must be addressed.
The current government, while investing substantially in the public sector, has certainly not abandoned its support for private sector involvement in public services.

The PFI was first introduced by the Conservative government in 1992 with the aim of securing private sector funding for public sector provision of new hospitals, prisons and schools. Essentially, private contractors construct the buildings or provide the service which the government then ‘leases’ back over an agreed term. Such PFI and partnership initiatives have implications for employment conditions.

Within the NHS, for example, those transferred to PFI hospitals will be protected through TUPE but unions have argued that new starters should also share the terms and A person’s pay should reflect their output, results and performance. This means the best performers, both individual and teams, and those who contribute most, should be rewarded. We should challenge systems which give automatic pay increases to poor or inefficient performers.

(Cabinet Office, 1999: para. 20) conditions of existing staff to prevent the development of a ‘two tier’ workforce. In 1999, the then AEEU (now AMICUS) published a report on the PFI where they listed a number of aspects considered essential to protect the rights of those involved in such schemes, namely, protection of existing terms and conditions, protected pensions, union recognition at new sites and employment protection for new and existing staff.

Some concessions have been offered by the government to reassure public sector unions regarding private sector involvement; for example, since April 1998, NHS unions have had the right to interview prospective bidders for PFI projects on their employment practices, equal opportunities and health and safety records. Similar rights were extended to Civil Service unions in October of the same year (Unison, 1998: para. 6.3).

Best-value guidelines emphasise repeatedly the need to involve staff in reviews of service provision. This falls short of explicit reference to union representation, but unions have indicated their readiness to use TUPE legislation to secure rights similar to those available in PFI contexts (Unison, 1999: para. 17).

In February 2003, however, in what the Financial Times described as a ‘U turn’, the government made substantial concessions to the unions regarding terms and conditions of employment for private sector workers employed on local government contracts. These concessions require ‘all new contractors providing services for local authorities to offer new workers such as cleaners and careworkers terms and conditions “no less favourable’’ than those already enjoyed by colleagues transferred from the local authority to the new contractor’ (Turner, 2003a: 2).

This agreement has come as a shock to the CBI who expected a rather more business-‘friendly’ agreement with a voluntary code of enforcement, whereas new agreements will now have to be written into forthcoming contracts. They believe this policy will make competitiveness within public private partnerships more challenging and so impede what they describe as ‘public sector reform’ (Turner, 2003a).

However, it should be noted that in supporting this reform the government is merely undertaking a commitment which it made in 2001 to address the two-tier workforce (Labour Party, 2001). While the union movement perceive this to be a very positive event, it should be noted that this agreement only applies to local government contracts at the moment. However, unions have already expressed the wish to see this agreement extended to cover all public private partnerships both in the future and those already in existence.

On a final note regarding the PFI schemes which are now well established in the prison service and to a lesser extent in health and education, recent assessments of their efficiency would suggest that the evidence regarding their value for money is by no means certain. Reports from the Institute of Public Policy Research (IPPR, 2001) and the Audit Commission (2003) raised questions about the efficacy of public private partnerships, particularly regarding the provision of value for money.

While the IPPR were able to point to success in the Prison Service, the Audit Commission found that in school construction projects, ‘traditional funding delivered, on average, better school buildings’ (2003: 1). Although both the IPPR and the Audit Commission are supportive of PFI, they drew attention to weaknesses in provision and the need for further monitoring and reform.

  • Summary

Public sector workforces remain predominantly collectivised despite these substantial challenges, and continued rapid decline in other sectors of the economy means that public sector unions still constitute the core of the labour movement. Data from the Workplace Employee Relations Survey (WERS) indicates that there is a recognised union in almost all public sector workplaces (95 per cent), but in only a quarter (25 per cent) of private sector ones (Cully et al., 1999: 92).

There is some variation in union density – that is, in the proportion of the workforce in union membership. Nearly two-thirds of civil servants are union members, compared with fewer than half (43 per cent) of NHS employees (Cully et al., 1999: 88). Overall density remains markedly higher, at 61 per cent, than elsewhere in the economy, however. However, there is still considerable frustration with the government’s determination to keep an ‘arm’s-length’ attitude towards the union movement.

As noted, the TUC has expressed criticism and doubt regarding the government’s commitment to partnership working and the PCS has overtly expressed its intent to move away from this agenda with the intention of lobbying for the abandonment of the current outsourcing policy and a declared intention to use industrial action, if necessary, to achieve this (Turner, 2003a). Regarding the PFI, this is regarded with suspicion by trade unions in that it is perceived as quasi-privatisation.

Unions are intent upon protecting terms and conditions for their members and extending protection to new employees in PFI ventures. The government appears to be supportive of this stance but will also ensure that sufficient employer freedom and flexibility persists to encourage further private sector investment. Overall, it can be seen that the public sector has changed substantially since 1980.

The ‘golden era’ of centralisation and collectivism was displaced after 1979 with a ‘market’ model focused upon cost constraint, privatisation and fragmentation. With the election of the Labour government in 1997 came a ‘modernising agenda’ which certainly maintained many of the market reforms introduced by its predecessors but recognized the need for added investment in both employees and infrastructure and has linked this to performance and target attainments.

The planned level of investment in the public sector will ensure some protection for terms and conditions of employment, particularly in areas where recruitment and retention are problematic. There is also a greater role for unions regarding bargaining and influence over review bodies and other pay-fixing initiatives, but this does not signal a new détente between the government and public sector unions, as the current firefighters’ dispute would illustrate. Rather, there is a renewed toleration for union engagement to ensure greater fairness but there is a clear government intent that this must not interfere with the effective introduction of change to meet improvements and performance targets promised to the electorate.

So far, this chapter has explored the establishment of the terms and conditions of employment largely in organisations where trade unions still bargain or where they are in a context where they still have considerable influence, such as upon pay review bodies in the public sector. However, it has been established that in the contemporary economy, most employees are no longer covered by collectively bargained agreements, instead working in organisations which do not recognise unions for such purposes. The next section will explore this issue in more detail.


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