Feature / Pay review

Pay is never very far from the NHS spotlight and having got together to examine ways of curbing their pay bills, 20 trusts in the south-west of England recently found themselves caught in the sodium glare.

Accounting for between 60% and 70% of their expenditure, it was inevitable that trusts would begin to look at options for reducing their pay bill. But perhaps the members of the South West Pay, Terms and Conditions Consortium (SWC) did not expect their initial moves to be met with such opprobrium. 

Health unions are already sensitive following two years of pay freezes and consideration being given to the introduction of market-facing or local pay. To the unions, the coming together of most of the NHS employers in one region smacks of a cartel planning to force an abandonment of national pay bargaining.

With union hackles raised, a number of demonstrations have been held since August, when the SWC published two documents – one exploring options for savings in pay, terms and conditions, the other looking at the economic, financial and service challenge facing the NHS.

Party politics

The SWC also caught the eye of politicians, with shadow health secretary Andy Burnham warning the Labour Party annual conference that the consortium was attempting to break national pay bargaining. ‘For as long as I do this job, I will support frontline staff and defend national pay in the NHS to the hilt,’ he vowed.

So what’s going on? Is this simply a tale of industrial relations taking a nosedive? Or is it a case of NHS employers following the lead of the private sector? In the current recession, rather than making redundancies, some commercial employers have cut their staff costs by reducing working hours or curbing benefits.

The consortium’s chair, Chris Bown, who is also chief executive of Poole Hospital NHS Foundation Trust, says the NHS faces an unprecedented challenge, both financially and in terms of providing modern, high-quality services for patients. As significant and responsible local employers, he adds, the group of trusts has a duty to act in a way that not

only preserves services for patients but also protects employees as far as possible.

The SWC’s August papers put forward a number of measures it said could save enough money to protect 6,000 jobs across the 20 member trusts. It is now working on a full business case, which is due to be completed by the end of this calendar year. It will be presented for consideration at each consortium member’s board and it will be up to each board what actions they then take.

Mr Bown says: ‘The consortium acknowledges the concerns expressed by some staff and unions at the establishment of this group, and as these plans take shape I would like to reiterate our commitment to continue to seek to work positively and constructively with staff as well as unions.

‘At the heart of the consortium’s work is a shared desire to preserve and protect employment while safeguarding high-quality health services for the populations we serve into the future.’

The SWC protests that its members are merely attempting to find their way through the financial and economic maze. Some context is needed, the consortium argues.

Pay forms a significant and growing part of the financial challenge facing NHS organisations, even allowing for the government’s two-year freeze, which is scheduled to end in this financial year (see box, facing page).

While the NHS in England overall is aiming to save £20bn by 2014/15, the SWC has modelled the impact of the savings target on a typical or sample trust. The characteristics of the trust include an income of £220m a year, 3,500 whole-time equivalent staff and a workforce spend of £140m (65% of income). Assuming this trust will have to make 5% cash-releasing savings each year between 2012/13 and 2014/15, it would have to save £11m in 2012/13, £10.45m in 2013/14 and £9.9m in 2014/15 (all on a reducing cash baseline).

The SWC says it is reasonable to assume that 65% of the target savings would come from payroll as payroll costs are the equivalent of 65% of income. But it is unlikely that more than a third could be saved from traditional measures, such as skill mix changes and back-office reductions, leaving about £4m a year to be saved in the pay bill over the three-year period.

National negotiations on amending Agenda for Change could deliver some of the savings required. Four proposals are on the table: to remove unsocial hours sick pay; remove fast-track preceptorship increments; introduce new management terms and conditions; and link increments more closely to performance.

Quantifying savings

The SWC says that while the changes in management terms would produce savings, these were unquantifiable at this stage. It has been able to put figures to the other proposals, although it says these are optimistic: unsocial hours (£100,000); performance-related increments (£200,000); deferring increments in preceptorship (£50,000 in cashflow benefit). Setting aside the possible savings from changes to management contracts, this would save the sample trust £350,000 a year, including the £50,000 cashflow benefit.

The sample trust would still be well short of its £4m target, so further action would be needed. The SWC says every effort will be made to reduce costs in other ways prior to proposing changes to pay, terms and conditions. But it is responsible for ensuring taxpayer funding is used more efficiently to protect both employment and the continued delivery of high-quality healthcare.

 ‘The alternative to addressing pay, terms and conditions is a wholesale reduction in headcount which, in potentially compromising minimum staffing levels and therefore patient safety, is extremely undesirable and costly,’ says the SWC in its financial challenge paper.

Accordingly, it has put forward 28 further measures for discussion (see ‘Savings opportunities’ box), which led the unions to accuse the consortium of riding roughshod over the national negotiations.

Union anger has not abated and was stoked again recently when it emerged that the consortium had appointed legal firm Bevan Brittan to advise on its full business case. In a survey of Unison members in the region in September, 97% said they were worried about the moves. The union said some of the responses it had received were ‘heartbreaking’, including people who said they would no longer be able to afford after-school activities for their children or who feared they would default on their mortgage.

Mr Bown insists consortium members support the national talks through the NHS staff council. It is for individual trust boards, not the consortium, to decide whether the outcome of the national negotiations provides satisfactory savings. ‘We remain fully supportive of the national discussions between employer representatives and unions which are looking at modernising the current Agenda for Change pay model, and we will be monitoring progress with great interest,’ he says.

Union protest

However, Unite head of health Rachael Maskell counters: ‘There is a mechanism for changing Agenda for Change staff pay, terms and conditions and that is the NHS staff council. They are undermining national negotiations on proposals to amend Agenda for Change. How can they be supporting national negotiations when at the same time the cartel is spending £200,000 of public money on something that is not a legal entity? The sole reason for this is to dismantle the national agreement.’

She adds that the trusts should move their focus away from pay, terms and conditions, where she insists any moves will be counter-productive, and concentrate instead on collaborating to save money on procurement, for example.

Mr Bown says the consortium’s work will complement the national negotiations where trusts have to make further savings.

‘The consortium believes that rather than watch these negotiations from a distance we can and should work in the background as these discussions take place to give us the best opportunity to be sustainable organisations in the years ahead,’ he says.

‘Financially healthy NHS organisations mean improved opportunities to preserve employment and a reduced need for redundancies, thereby helping to underpin each trust’s chief responsibility – the delivery of excellence in the care we provide.’

 This points to the heart of the problem. Trusts must juggle the desire to cut costs with the need to provide high-quality patient services. To provide the latter they must employ the correct mix of skilled staff who feel valued and are sufficiently motivated to engage with service reconfiguration and other efficiency and quality initiatives.

But with little sign of a let-up in austerity measures, even after 2015, inevitably trusts will have to examine their biggest overhead – pay. That equation will be tough to balance, which means the current initiative will be watched with interest well beyond the south-west.