Comment / News analysis: Incremental drift

As public sector unions gear up for possible strike action over pensions, a new front in the remuneration battle has opened up. Having tried – and failed – earlier this year to reach a national agreement that would freeze pay increments for staff on Agenda for Change (AFC) contracts, NHS Employers has signalled its intention to keep trying. And Healthcare Finance understands an increasing number of trusts are exploring ways of varying existing contracts as they seek to contain one of their major cost pressures.

Nationally, most staff on AFC terms and conditions did not receive a cost of living pay rise this year, nor will they in 2012/13, following the government’s decision to freeze pay in both years. However, NHS Employers insists the freeze on cost-of-living rises will not be enough to restrain the growth of the pay bill. Further reductions in national pay and conditions are needed in order to protect jobs and help trusts meet their cost improvement plan targets, which average 6%.

Staff earning less than £21,000 will receive a £250 uplift both this year and in 2012/13. And staff who are not at the top of their pay band will be entitled to an incremental rise, even if they do not receive a cost-of-living increase.

In its submission to the NHS Pay Review Body for 2012/13, NHS Employers says employing organisations are concerned about the cost of both the £250 rise and incremental drift.

In total, the provisions added 2.4% to the pay bill in 2011/12 (2% for increments and 0.4% for the low pay provision) and are expected to add a similar cost in 2012/13. Employers said this cost pressure ‘seriously risks the achievement of cost improvement plans and makes it more difficult to minimise redundancies’.

Call for flexibility

Providers want greater local flexibility in the national agreements. As well as concern over the cost of increments, some employers want sick pay and unsocial hours enhancements reviewed, while others want a clearer performance or productivity link to increment progression.

NHS Employers argues that if employees receive increments for no productivity gain, unit costs will increase. This will make it more difficult for providers to compete under the government’s any qualified provider policy.

While this has prompted many employers to seek discussions with local staff representatives on pay and conditions, in parallel the employers organisation has sought to convince staff unions on the NHS Staff Council that there should be a national agreement.

Initially, NHS Employers proposed a freeze on increments in return for no compulsory redundancies for staff in AFC bands 1 to 6 (those earning less than £34,000 a year). While union members on the council turned this down, it is understood employer representatives have also tabled proposals on an extension of the working day, sickness pay rates and annual leave.

NHS Employers director Dean Royles says all NHS organisations are facing difficult decisions as they seek to deliver unprecedented efficiencies of up to £20bn by 2014/15.

‘The pay bill for health trusts is often nearly 70% of their budget and even during the government’s pay freeze there is an upward pressure on their pay bill costs of 2.4%,’ he says. ‘Tight control of staff costs will be necessary if the service is to minimise potential job losses and ensure patients continue to have access to high-quality services.

‘Employers are very concerned about the cost of the pay bill. As the NHS employers’ organisation, we are keen to continue discussions with trade unions on the NHS Staff Council about the scope for negotiated changes to the national pay agreements to make them more affordable and flexible.

‘We also believe it is essential that local employers have meaningful discussions with local trade unions and staff about the workforce implications of the financial challenges for their organisations,’ he adds.

In their joint submission, the unions not only call on the pay review body to endorse the UK-wide application of the AFC agreement and national pay determination, but they also ask for a significant increase in pay rates overall.

The unions say a two-year increment freeze would generate savings of £1.9bn over three years, due to the timing of increment payments. Most would be attributable to non-medical savings – £1.4bn (2% of non-medical pay bill) and £500m (2.5% of medical pay bill).

Unison head of health Christina McAnea says local contracts are counterproductive. ‘Of course we are interested in talking to the employers nationally about how our collective agreement remains fit for purpose, but we think that chipping away around the edges of the terms and conditions package is not the right place to start,’ she says. 

‘We think there could be major gains to be made from going back and looking at what the agreement was supposed to deliver and seeing how we can now use it to drive the major workforce and cultural change the NHS will need if it is going to continue to provide the same level of services with shrinking resources. ?

‘Our priority is to make sure that we preserve high-quality patient services now and for the future. We believe the answer to this lies not in knee-jerk cuts to staff pay but in engagement in discussions about how we plan for a sustainable future workforce.’

Foundation trusts can vary terms and conditions and at least one – Southend University Hospital NHS Foundation Trust (see box) – does not use AFC for the majority of its staff. However, before finances tightened there was little interest from other foundations in joining it.

Change of approach

Unison says a small number of trusts have proposed changes recently. It says proposals have included one East Midlands trust asking all staff to work a half day a month unpaid, and another seeking to alter the times at which unsocial hours payments kick in. 

The Royal Surrey County Hospital NHS Foundation Trust has contacted all staff to survey their views on potential changes to their terms of employment. Speaking earlier this year, Michael Pantlin, the trust’s director of human resources and organisational development, said that while staff had done a ‘fantastic job of identifying savings’ for this year, the trust needed to find even more savings in the years to come.

‘Bringing down the cost of jobs can help ensure we save jobs and protect patient care. We are exploring whether reviewing some terms and conditions of employment to make savings will help us take on the financial challenges facing us and protect the quality of services we offer,’ he added.

Though staff at individual trusts may accept the offer from their employers, their unions are keen to retain national terms and conditions, though not necessarily the status quo. With both sides keen to come to the table, could a revision of Agenda for Change be around the corner?

Southend goes it alone

Southend University Hospital NHS Foundation Trust moved away from Agenda for Change (AFC) contracts in 2006, when it gained foundation status. Some 95% of staff opted for a local scheme, which can give them annual rises higher than AFC, the ability to buy and sell annual leave, and a bonus if performance targets are achieved.

Keith Warrior, the trust’s head of HR operations, says in tough times pay awards have been less than AFC, but local terms allows the trust to consult on how best to reward staff and protect jobs.

This financial year the trust maintained the incremental progression for those staff on local terms, but it did not pay them a cost-of-living rise.

Says Mr Warrior: ‘Our local pay deal provided us with £1m towards cost savings. Therefore we have not had to make any staff redundant as a result of the pay deal.’