A “perfect storm” of issues surrounding staff terms and conditions could see all sides vying to influence the NHS Pay Review Body in the next 12 months. In such troubled times, can it realistically hope to retain its independence, asks Mike Jackson.

Amidst all the turmoil faced by health staff and managers trying to find £20bn of savings whilst at the same time being subjected to the biggest re-organisation in NHS history, new storm clouds are gathering on the horizon. A toxic mix of pay freezes, pension reform and the fragmentation of the national pay system may create the “perfect storm” of issues that could drag the NHS into its worst industrial relations climate for three decades.

In this climate, can the NHS Pay Review Body still be regarded as independent?

By the end of the current two year pay freeze, which was preceded by several years of below inflation increases, the value of NHS pay will have fallen by around 15 per cent. NHS pay is effectively back at pre Agenda for Change levels. Layered on top of this is the proposal to increase NHS pension contributions by 3.1 per cent from next April and then limit annual pay uplifts to an average of 1 per cent from 2013 to 2015. If inflation remains at around 5 per cent, the value of NHS take home pay will have been cut by over a quarter in the lifetime of the coalition government.

So why is the government risking damage to the morale of NHS staff and throwing down the gauntlet to NHS trade unions?

With 70 per cent of government health spending going on pay, the reason may seem obvious.  But QIPP will be two years old come next April, so why now? Well, Trusts have so far been picking low hanging fruit. Better vacancy management, some restructuring, skill mix changes and workforce reductions have been the mechanism by which paybill costs have been reduced.

But despite this pay costs continue to rise at around 2.4 per cent each year. The cost of pay (incremental) progression is around £1bn per annum whilst the £250 uplift to the lowest paid staff adds a further £200m. This has mitigated the loss in the value of pay for staff during the freeze but these costs continue to put pressure on trusts’ budgets.

12 months ago, government and NHS employers attempted to do a deal to freeze pay progression. The deal failed because staff simply could not afford to take the hit to their pay and the employers could not guarantee that there would still not be redundancies. So why did the government and the employers then back away from this issue?

Firstly, the deal could not be “imposed” because it would have breached contracts of employment. All parties had the same legal advice. Secondly, employers were nervous of escalating tension whilst pensions negotiations were proceeding during this year. Thirdly, the option of putting new starters on local contracts was abandoned when the complexities were examined and employers recognised their exposure to equal pay claims. Fourthly, the employers were divided. Whilst some, mostly foundation trusts, tinkered with terms and conditions, the majority indicated they favoured national solutions.

But with little progress in national talks the government and employers are now looking to reduce paybill costs in more radical ways. Dean Royles’s speech to the Employers’ Conference in November signalled that he wanted local as well as national negotiations around the terms and conditions package. This was followed quickly by Chancellor George Osborne’s announcement of new limits on NHS pay coupled with instructions to the independent NHS Pay Review Body (NHSPRB) to come up with options for regional or local pay.

But it’s questionable whether these strategies have been thought through. Local pay bargaining has been tried before in the NHS, in 1995-1997. It was a failed experiment. Regional pay has been floated and then rejected by government during the past decade. So what is this new remit likely to produce and what might be the fall-out?

The government remit to the NHSPRB is clearly laid out in George Osborne’s letter to the recently appointed chair, Jerry Cope, in a letter dated 7 December. Its central theme is that the government wants to see pay, terms and conditions better reflect local labour market conditions. In this, the Chancellor wants the Review Body to look at “total reward”, not simply pay. In other words, he wants a comparison drawn with other terms and conditions and pensions as well.

This approach has been rejected by the NHSPRB in the past. It has resisted attempts by the Department of Health to persuade the Review Body take into account “total reward” when making its recommendations for annual pay uplifts. Will that backbone still be there in this new climate?

The government wants the NHSPRB to identify areas or zones for differential pay rates. Some research and consideration has been undertaken by the Review Body in recent years to identify areas where recruitment and retention premia are paid or maybe desirable. It has also looked at “high cost areas” to see if additional premia to that paid in London was justified. But in the end the NHSPRB has steered well clear of differential pay rates, recognising the inherent difficulties and potential unintended consequences of breaking up national pay rates.

How will the devolved administrations react? Will the Scottish Nationalist government follow a Tory Chancellor’s agenda when health pay is a devolved policy? Or will Nicola Sturgeon use this opportunity to entice Scottish unions away from the NHSPRB, a UK institution, with the promise of a better deal in Scotland?

How will the Wales Assembly government respond to the opportunity to reduce its paybill, with public sector pay approximately 9 per cent higher than the private sector? How will it weigh this opportunity against the risk of breaking the hard won consensus that is building a restructured Wales NHS?

And how will the most cash strapped administration, the Northern Ireland government, respond to these developments when 15 per cent cuts have already been imposed on health workers’ pay across the border in the Republic?

So the NHSPRB is in a difficult place. For 20 years after its creation in 1984, it delivered fair pay settlements for NHS workers. It recognised the link between fair pay, good staff morale and high quality patient care. It demonstrated its independence by taking a balanced view on the evidence it received.

But can it still be regarded as independent if it simply follows the government’s radical remit to go down the road of regional pay and total reward comparisons?

Can the NHSPRB be regarded as independent if trade unions have no say in its remit, terms of reference or its membership? The government has recently been repopulating the Review Body. It recently replaced a troublesome (in its view) chair who displayed a strong independent streak. How credible will the NHSPRB be at the end of this process?

Will trade unions be prepared to support the process and give evidence to a Review Body when the government have made their intentions very clear as to what they intend to do with NHS pay?

If the independent process, the credibility and the consensus that has sustained industrial peace in the NHS since the strikes of the 1980s is now lost what will be the future? Does the government believe that it can impose pay restraint, impose an inferior and more costly pension scheme and subject NHS pay to local and regional labour market forces and expect there will be no reaction?

The “Pensions Day of Action” on 30 November may have given union members a ‘taste’ for industrial action. Union membership record data bases have now been cleansed. Balloting will now be much easier. 30 years of inexperience in taking strike action has now been remedied. New activists have been recruited. The unions’ passivity on pay may be coming to an end.

And will the employers be prepared to wait another seven months before knowing the outcome on the NHSPRB deliberations? Or will clusters of foundation trusts decide to go their own way in the spring?

How will politics pay into this mix? The NHS reforms have re-toxified health as an issue for the Tories. Will the Tory-led government’s confrontational approach to staff pay and pensions be accepted by the public?  Could they be punished at next May’s local elections? If industrial relations break down in 2012, what chance that £20bn QIPP targets will be met and service standards maintained during massive restructuring?

2012 may turn out to be the most challenging year in the NHS’s 63-year history. The question is, how much “national” will there still be in the NHS in 2013?