The national enabling agreement proposes a pay freeze in return for no compulsory redundancies - but could this really be delivered? Director of public sector consulting at Hay Group Peter Smith weighs up the pros and cons.

There has been much debate recently about a national enabling agreement on pay. The idea is to freeze increments under Agenda for Change for two years in return for a guarantee of no compulsory redundancies. In practice, it looks as though the proposals will fail, defeated at least in part by union opposition.

But NHS Employers and some trust chief executives still seem keen - so what are the arguments?

At headline level, the potential gains seem obvious: freezing increments will save money and guarantees about jobs should reassure staff (and some parts of public opinion, too). The more settled and engaged people are, the better they will perform at work. But it is questionable whether implementing the agreement would in itself improve staff engagement.

The measure is not at all even handed - people who are already at the top of their pay range would not be affected, whereas those who are lower paid in each range would be held back. It would protect only jobs at bands 1-6 against cuts, not those above that level - the people whose leadership style creates the working environment for others would still be at risk.

In addition, other forms of job loss short of compulsion would still be allowed, and many members of staff would have difficulty believing that enforced redundancies could be avoided.

So it would be simplistic to imagine that a general agreement would improve morale and services. It is also doubtful whether trusts can or should commit to making no compulsory redundancies.

Pressure to act

Trusts have to find significant savings in their cost improvement programmes and the pressure will increase in the coming years. To deal with financial constraints at the same time as improving and reshaping services, they will have to consider major changes in how they operate, such as ceasing some services altogether, sharing support services with other organisations and creating clinical support/diagnostic centres which serve several hospitals.

In some cases, there may be mergers. Under these circumstances, it is hard to see how trust boards can promise not to enforce any changes.

But it is also not clear that they should want to make any promises. The board’s responsibility is not to protect the employment of existing staff but to make sure there are financially and clinically resilient services and high quality patient care.

If they have to remove, say, 10 per cent from the cost base, it is by no means certain that cuts at the margins and programmes of natural wastage and voluntary redundancies would be the right way to do it.

First, slow and gentle forms of change can be damaging, too - simply not replacing people who leave can distort the balance of skills in the trust and offering voluntary severance can lead to loss of capability and experience while failing to remove people the organisation could do without. Cuts of this kind still cause a dip in morale but they may not make the trust fit for the future.

Second, the evidence from other organisations and from other countries facing severe financial pressure is that it is better to take a clear view of the medium term needs and then make cuts in a planned and targeted way.

If staffing costs need to go down by 5 per cent, cutting posts by the same percentage may not be right. It might be better to reduce by more, to create room for a swift return to normal patterns of recruitment and promotion.

Of course, it is misleading just to constrain the debate within parameters set by the enabling agreement, because that will leave important issues unexplored.

For example, redundancies are potentially expensive. Most companies have changed their redundancy policies in the past few years, the government has legislated to reduce the cost of severance in the civil service and any part of the NHS wanting to make major changes has to keep the cost at a level which is reasonable for the taxpayer.

Another point which has had little discussion is the structure of the Agenda for Change pay system. If simply withholding increments saves more than 2 per cent of the paybill, one might reasonably wonder if the pay system is too inflationary to start with.

If the Treasury and the Department of Health want a modern, flexible, cost-controlled NHS, they should look at reforming the system, not freezing it. But changing the pay system is not a topic for discussion.

The idea of a national enabling framework has raised important questions, which have to be answered at local level, based on the strategy and circumstances of each trust.

The real need is for the trust board to develop and unite around a clear medium term plan for change, in the organisation and in the local health economy. The place of redundancies and pay costs in the plan will vary from area to area. Everyone should look hard at what is required before leaping to conclusions.

Priorities for chief executives

  • All trusts need a coherent and integrated plan for change over the next three years which brings together service developments, collaboration, the response to policy and commissioning reforms and cost improvement. Piecemeal change is not an option.
  • This is not a time for picking soft targets or sharing cuts around on the basis of equal misery. Difficult decisions will be needed about what the trust does, how it operates and what is in the long term interests of the organisation and its patients.
  • The plan has to put people at the centre. In the midst of great change and potential upset, the trust has to grow and retain talent and engage and motivate staff.
  • Trusts have to see pay as a local issue rather than just a national system which is imposed on them. The paybill is a high proportion of total costs and escalates each year; these facts make it impossible to ignore.
  • Good, clear communication is central to managing change, in pay or anything else. The plan has to be agreed and understood by stakeholders and honestly stated.