Nurses' pay could be dictated by local market rates under proposals being discussed by the board of the Department of Health.

The DoH is also considering a three-year pay deal starting with an award at or below inflation in 2008-09.

A draft of the DoH pay and workforce strategy document seen by HSJ suggests that one way to reduce the growing national pay bill would be to introduce more variation in pay to reflect regional and local markets.

Such a proposal would be sure to cause uproar among unions and those nurses working in parts of the country where national pay scales for nursing compare well with pay rates in the local economy. At the moment, the only variations in pay rates come via premiums paid to staff in London and its fringes, with some 'cost of living' allowances for areas that find it difficult to recruit.

The proposal draws on evidence from a study by Aberdeen University and commissioned by the DoH which shows that nurses are 'recruited predominantly in local labour markets'.

The strategy says that it may be possible to 'achieve a more efficient wage distribution for nurses by having a greater variation in nurses' pay by region than is currently the case'.

The document by the workforce directorate resolves to explore this idea further, and says it has agreed to do some 'joint research' with the secretariat of the pay review body for nurses and other professions 'to see if there is scope to build a consensus with the review body around the case for change.' It suggests other routes would be via negotiation or the gradual use of local pay freedoms by foundation trusts.

Given the need for an increased number of staff in the short term, ahead of the December 2008 18-week waiting target, the paper suggests it would be 'helpful' to develop policies which would reduce the cost of this. It suggests a three-year pay deal, 'which would allow some back-loading of costs' as well as delivering cost and industrial relations stability. Such a deal might also allow some progress on areas like greater regional variation in pay, it says.

The paper suggests the government might be able to secure agreement to a below-inflation pay award in 2008-09 provided the long-term gains are attractive enough.

'It might be possible to secure agreement to a pay award below inflation (or an award at inflation deferred for a year) in 2008-09, provided the unions were offered something of sufficient longer term value', it says.

And it identifies three 'big ticket' items that it believes most unions want:

  • better terms and conditions, especially a reduction in working hours;
  • improved career development;
  • better job security.

Any commitment to reducing working hours would be 'very expensive', the document warns. Reducing the working week from the current 37.5 hours to the favoured union level of 35 hours would land the government with a substantial£2bn extra pay bill. 'It is very difficult to see how we could secure a corresponding rise in productivity to offset this cost,' it adds.

It says career development could be a 'win-win' if it improves the quality or quantity of staff. But the document suggests that the scheme lacks 'universal appeal' given that the professional unions, especially the British Medical Association, have fewer concerns about training than those representing low-paid staff. 'Overall, our judgement is that while some element of commitment to development might help sweeten a deal, it could not buy it,' the document concludes.

The strategy suggests the third item - job security - is 'of nearly universal concern' to the workforce. Major elements would include guarantees or moratoriums on compulsory redundancies, jobs for students leaving training and continued access to NHS pensions for those transferring out of the service.

The document suggests it would be possible to 'package' some of this as a restatement of the existence of an 'NHS family' for staff providing NHS services, no matter their employer.

But it suggests that such a step 'would cut to the heart of a major question within the overall reform strategy' - whether the government is seeking to only improve quality, choice and innovation, or to also reduce high employment costs. If the latter, any guarantees which could lock in higher costs should be ruled out, it says.

Of the three, the document concludes that no one 'high risk concession' would be enough to secure a low pay award in 2008-09 or agreement on local pay variation. The government instead favours 'an overall package deal with a range of modest concessions, possibly presented as a compact designed to balance the interests of patients (by helping the NHS achieve the 18-week target), staff (in terms of job security, conditions, training, career progression), and the NHS (in supporting reform)'.

The document concludes that an option particularly worth exploring is the development of a 'cafeteria style' total reward package, where staff can trade hours and leave for pay. It suggests this could offer diplomatic benefits: the unions 'could claim' it permitted the desired 35-hour week, while 'in practice most staff might be expected to cash in extra hours and leave for more pay'.