Richard Kerley: The sliding scales that will beat pay freeze

Over the better part of the last week, parliament and press have paid rather more attention to what we now know the Scottish budget cannot do for the next couple of years than what the budget for the next year does actually contains.

This is unfortunate , because there are many aspects of this budget that require examination, either because they suggest interesting developments, such as the health monies to be spent on social care, or because they are not quite what they seem – such as the widely broadcast pay "freeze" for all public service employees earning more than 21,000 a year.

Some form of action on pay is clearly a central part of the budget, as pay represents approximately 60 per cent of the total public service spend, a proportion of budget that rises to over 80 per cent in the police service.

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When John Swinney, the finance secretary, made his announcements on public service pay, the official record indicates there was '(Applause]'. Clearly these announcements were popular with some MSPs. So just which measures were so popular?

The Cabinet Secretary stated his aim: "…to maintain public sector jobs and services by constraining pay and to support those who are on the lowest incomes". A number of measures were announced that are intended to achieve this, including a continuing freeze on ministerial pay, reductions in senior civil service numbers, reductions in executive pay in some government influenced public bodies and a pay freeze – or, more technically "…a 0 per cent basic award – for all staff in 2011-12, with the exception that staff who earn less than 21,000 will receive a minimum increase of 250…" There is also a commitment to introduce a "living wage" of 7.15 per hour for all employees under Scottish Government authority (calculated as a little under 13,500 annually].

While the freeze level follows the lead previously announced by the UK government, the living wage announcement is a distinctly Scottish departure. Interestingly, however, the Westminster freeze is for two years.

So, although Mr Swinney only announced a one year budget, we must assume two years of freeze is factored into figures that have not yet been released.

On the face of it this seems to provide greater protection for lower paid workers – that is, those earning under 21,000 – than it does for those above this level, whose pay will notionally be frozen. There is, however, an unmentioned and largely undiscussed aspect here: the difference between any annual settlement (which the government wants to freeze] and the annual incremental increase that many public employees have built into their salary schemes. A wide range of local government employees, all teachers, a wide range of health service workers, police officers and firefighters are all on incremental salary scales of various complex kinds.

The consequences of these arrangements are that, regardless of whether a cash increase comes from any negotiated annual settlement or a freeze, many thousands of public employees will receive a pay increase next year that may even be greater than any negotiated annual settlement might be. This was an issue which the members of the Independent Budget Review considered in their report, and commented that an ad hoc approach to such incremental payments would be inequitable. But they also recognised that such payments are part of the contractual arrangements for hundreds of thousands of staff and could not be unilaterally scrapped. They recommended early negotiations should be commenced to discuss this with the relevant trade unions.

Such incremental arrangements apply to a wide range of posts in the public services. The table illustrates the impact of this in the first two years of appointment for some typical entry level posts that have salaries starting at just over 21,000.

Such annual increases generally run at approximately the same percentage level for each year (with the exception of Year 1 of teaching and an increase after the first 31 weeks of police service training] over a number of years. The nature and length of these incremental scales varies between different sectors of public service employment and different occupational groups.

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Typically for most local government posts the scale runs over five points over five years; for teachers seven points; for nurses eight points; and for police officers ten points.

For employees on such incremental scales, such annual percentage increments have generally been greater than any negotiated annual settlement agreed over the past two years, and certainly that in prospect for this coming year.

In this context, the promised minimum increase for employees paid under 21,000 for next year seems less than generous: 250 represents a 1.19 per cent increase on a salary of 20,999, although a proportion of this cohort will also be entitled to annual increments. The figures prepared for the Independent Budget Review indicate that some 47 per cent of public service employees fall under the 21,000 barrier – which of course means that 53 per cent of the public service workforce whose pay is notionally frozen can continue to benefit from annual incremental increases.

It is very complex and difficult to establish how many groups of staff employed in the public services in Scotland benefit from automatic annual progression on such incremental salary scales, progression that is only denied in exceptional circumstances. That is, if an employee remains in post over a number of years his or her pay increases, regardless of any negotiated annual settlement or freeze – just for staying another year, as some describe it.

The only major departure from this in recent years has been in the core civil service, where pay progression is performance related, and based on appraisal of the performance of the individual member over the past year. This group of staff is one of the smallest groups of public service employees in Scotland, which means the Scottish Government only has direct control over approximately 8 per cent of the pay and conditions of the public service workforce.

The government is also changing arrangements to exert more control over the wider range of public bodies that are more closely connected to the centre – what is now widely known as "the Scottish Government Family" with some success.

Estimates suggest that, of the approximately 500,000 people in devolved public service employment in Scotland somewhere in the order of 412,000 are in employment groups entitled to annual incremental salary increases. As all the data suggests, annual incremental increases alone may account for between 150 million and 200m in each year.

The actual cost figures in any one year are impossible to calculate on the current information base available. Some key features of any incremental scale are how long it is; how long is the typical tenure in any post and what is the typical turnover of staff? That is why, for example, the incremental scales for teachers and police officers tend to be longer than others – incumbents typically stay longer in their posts.

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The detail of such figures is, therefore, exceptionally challenging to establish, but the broad consequences are clear. Many public service employees earning over 21,000 will not see a "freeze" as most of us would understand it.

And in the coming year, the discussion promised by Mr Swinney about "flexibility in employment" as a means of saving jobs will surely focus on annual salary increments.

• Richard Kerley is professor of management at Queen Margaret University in Edinburgh