Public sector pay strategy 2023 to 2024: technical guide

5. Public Service Reform Approach to Public Sector Pay

Pay and public service reform

5.1 The Pay Strategy recognises the challenges that employers can face in responding to changes in demand for services and delivering wider workforce reform, including consideration of a reduced working week. In order to support employers in delivering the strategic aims of the Pay Strategy and wider Government priorities, the Pay Strategy includes the option for employers, in discussion with their trade unions, to either:

• apply the single year 2023-24 Pay Strategy as set out in detail below;

or

• take a multi-year approach to pay enabling a more strategic approach to support achieving public service reform. This allows employers to apply increases outwith the set metrics but within an overarching framework subject to affordability and sustainability.

5.2 This option enables employers to apply paybill increases outwith the set metrics above but within an overarching framework subject to affordability and sustainable public finances. This section covers the type of things that should be considered as part of the reform option.

Key features of the reform option for 2023-24

5.3 The 2023-24 Public Sector Pay Strategy includes the option for employers to take a multi-year approach to pay, enabling a more strategic approach to achieving public service reform. This must be done in consultation with relevant staff representatives and/or trade unions.

5.4 This approach allows employers to apply pay uplifts outwith the 2023-24 Pay Strategy metrics. Taking a strategic, multi-year approach to pay.

• Will provide more financial certainty for both employers and employees on the future pathway of pay.
• Allows employers to work towards standardising to a 35 hour working week.
• Will help facilitate longer-term affordability options that enables the organisation to realise efficiency savings.

5.5 Employers seeking a multi-year approach to pay will be required to submit a business case in line with these overarching principles which should include an implementation approach. Business case guidance is included in this Technical Guide, see paragraphs 5.9 to 5.16.

5.6 The Pay Strategy does not apply to the remuneration of Senior Civil Servants as this is a reserved matter and operates within the UK Cabinet Office pay and performance management framework.

What metrics can be changed as part of the reform option?

5.7 The reform option allows for organisations, in conjunction with engagement from trade unions, to agree pay parameters outwith the single year 2023-24 Pay Strategy option.

5.8 The table below provides a non-exhaustive list of the 2023-24 single year Pay Strategy features that could be considered as part of a multi-year year pay reform option.

Overview of business case guidance

5.9 A business case is required for employers (in partnership with trade unions) who seek to approach their Pay Strategy through the lens of achieving public service reform. Employers should demonstrate a clear link showing how the proposals will benefit and improve outcomes for those people using the organisation's services as well as the wellbeing of staff.

5.10 When submitting a business case, employers must demonstrate they have considered and met the following overarching principles throughout their proposals.

• Investment in workforce: set out long-term, person-centred changes to delivery and demonstrate improvements in productivity.
• Sustainable public finances:deliver cost-neutral savings and efficiencies to the paybill from early in the lifecycle of the multi-year pay proposals.
• Progressive Pay Strategy:demonstrate progressivity and protect those on lower incomes throughout the lifecycle of the proposals.
• Wellbeing:demonstrate how wellbeing has been considered. Proposals must assess the impact of a reduced working week, including potential participation in a four-day working week pilot, and how this will be achieved within allocated funding.
• No Compulsory Redundancy:where restructuring is required to achieve the reform approach, business cases must include details of any redeployment or re-training proposals and how the Severance Policy for Scotland will be used for any proposed voluntary exits.

5.11 Before completing and submitting a business case we recommend that employers arrange an initial exploratory conversation with the Public Sector Pay Team (email:FinancePayPolicy@gov.scot).

Approvals and submission process

5.12 Public bodies should submit their business case to Sponsor teams (where applicable) and the Public Sector Pay Team at the same time.

5.13 The Sponsor team along with the Finance Business Partner will consider the business case in the context of business delivery, value for money, and wider portfolio read-across.

5.14 The business case will be reviewed by the Public Sector Pay Team to ensure the proposals provide sufficient detail. For longer-term and more complex cases, expertise from the Public Spending team may be used. If this is the case full disclosure with the employer will be made.

5.15 As long as it is agreed that the proposals meet the objectives of the reform option, and both the Sponsor team and the Finance Business Partner are content, any proposals can be approved by the sponsor director and will not need to go to the Scottish Government's Remuneration Group for approval. The Public Sector Pay team will provide an update to Remuneration Group as part of the pipeline report. However, any proposals which could be considered as contentious or have a risk of wider read-across would require to be referred to Remuneration Group.

Guidance on completing business case form

5.16 Further details of the type of information needed for the business case categories in paragraphs 5.10 above are given below.

Investment in workforce

• Proposals must set out long-term, person-centred changes to delivery and demonstrate improvements in productivity.
• The business case is expected to show how the workforce within the organisation can become more productive as a result of the reform changes.
• It would help if this section contained details of both the short-term and long-term effects of the reform option. For example, it might be the case that there will be shorter term disruptions to productivity before long-term gains to productivity can be realised.

Sustainable public finances

• Delivers cost-neutral savings and efficiencies to the paybill from early in the lifecycle of the multi-year pay proposals.
• This section should include an appropriate baseline paybill over the multi-year time period being proposed. The assumptions for this should be clearly detailed.
• It should also show what the expected paybill will be after the reform option is implemented. As with the baseline calculation, assumptions should be set out clearly.

Progressive Pay Strategy

• Demonstrate how proposals are progressive and protect those on lower incomes throughout the lifecycle of the proposals.
• The overall strategy should remain progressive, protecting the lowest paid.
• The commitment to the real Living Wage must be maintained.

Wellbeing

• Demonstrate how wellbeing has been considered. Proposals must assess the impact of a reduced working week, including potential participation in a four-day working week pilot, and how this will be achieved within allocated funding. See paragraphs 4.45 to 4.50 for further detail on the 35 hour working week framework.

No Compulsory Redundancy

• Where restructuring is required to achieve the reform approach, business cases must include details of any redeployment or re-training proposals and how the Severance Policy for Scotland will be used for any proposed voluntary exits.

Trade union and/or staff engagement

• Provide details on how trade unions and/or staff have been engaged regarding the proposal.

Equality Impact Assessment of the proposed changes

• Please confirm that an Equality Impact Assessment has been undertaken and provide the key findings.

Questions and Answers

How will the reform approach work in practice?

5.17 As this is a choice, employers and trade unions can agree to take this approach instead of applying a single year Pay Strategy. Multi-year spending plans will be produced to facilitate this, but conversations can start in advance of these being made available.

5.18 Pay increases outwith the 2023-24 metrics will be allowable, subject to a business case that demonstrates joined up, holistic, person-centred changes to public services and wellbeing benefits to the workforce underpinned by affordability.

5.19 Business cases will be considered by the Sponsor team, the Public Sector Pay Team and Finance Business Partners and the Remuneration Group (as required). Public bodies will still be required to complete a pay remit proforma supporting the reform approach business case.

5.20 Decisions will be taken on a case-by-case basis, without prejudice to the overarching Pay Strategy principles or to the single year Pay Strategy.

Are any changes expected to Employer Pension Contributions that need to be taken into account if considering the reform approach?

5.21 Employer Pension Contributions are an element of on-costs. Employers participating in one of the unfunded public service pension schemes (NHS, Teachers', Police, Firefighters', Civil Service and Judicial pension schemes) should be aware that the current employer pension contribution rates will remain in effect until 31 March 2024. New rates will be set via the 2020 actuarial valuations and implemented from 1 April 2024.

5.22 Those employers participating in the Local Government Pension Scheme will be aware that their employer pension contribution rates are set every three years by their pension fund via local actuarial valuations. The current rates will remain in effect until 31 March 2024.

5.23 Employers offering non-public service pension schemes should consult with their scheme provider on upcoming changes to employer pension contribution rates.

Can a multi-year deal start from 1 April 2024 rather than 1 April 2023?

5.24 Yes, employers can choose to submit proposals for a multi-year deal starting from 1 April 2024 but must apply the 2023-24 metrics from 1 April 2023. The option to consider reform will be a feature of future pay policies.