Public sector pay policy 2021 to 2022: equality impact assessment (revised)

Background

The 2021-22 Public Sector Pay Policy is driven by the Scottish Government's purpose: "To focus on creating a more successful country with opportunities for all of Scotland to flourish through increased wellbeing, and sustainable and inclusive economic growth".

In 2018-19 Ministers gave a commitment in their Programme for Government to lift the 1 per cent pay cap on base pay increases^[1]. To help deliver this and help work towards pay restoration, particularly for the lower earners who were most impacted by the years of pay freezes and pay constraint, the 2018-19 Public Sector Pay Policy provided a guaranteed 3 per cent base pay increase for those earning under £36,500. The policy for 2019-20 again provided for a guaranteed 3 per cent basic pay increase for those earning under £36,500. Furthermore, to provide positive opportunity for employers to tackle overall income inequality, the policy provides the flexibility for employers to use paybill savings to address inequalities.

The 2018-19 threshold of £36,500 helped provide increases that reflected cost of living pressures and benefitted three-quarters of public sector employees. The same policy applied in 2019-20 but in addition employers were encouraged to use the flexibilities for addressing inequalities to top up the 3 per cent to provide a cash underpin of £750 for those earning under a full-time equivalent salary of £25,000. In 2020-21 the £36,500 threshold was removed but the policy prescribed the requirement to pay a £750 cash underpin for all those earning below a full-time equivalent salary of £25,000.

The pay policy has continued to constrain pay for the highest earners and work towards reducing overall income inequality by setting a cap on increases for all those earning above an upper threshold based on a full-time equivalent salary of £80,000.

Decisions on setting these pay thresholds also took in to account the options for the Scottish Rate of Income Tax.

It is proposed the policy for 2021-22 continues that journey and supports the 2020-21 Programme for Government commitments^[2] on fairness and equality. The Programme for Government acknowledges the impacts of COVID-19 have not been felt equally and it is expected the on-going economic impact will be felt disproportionally by women, those from minority ethnic communities, disabled people and young people. There is a tangible risk that the current health crisis could increase both the gender employment gap and the gender pay gap in the short to medium term.

The Programme for Government sets out the commitment to ensuring everyone can access work that is fair and offers flexibility and opportunity for all. It also commits that resources are targeted as far as is possible at jobs with fair wages, including payment of the real Living Wage as a minimum.

In developing the 2021-22 Public Sector Pay Policy, consideration was given to affordability and the public's expectations on public spending against protecting the lowest earners and pay restoration. Deliberation was also given to balancing the need for fairness and consistency across all public sector workforces against the value to individual public bodies of the pay policy providing sufficient flexibility to negotiate changes in working practices that will support the delivery of high quality public services and increase productivity.

In line with the position Ministers have taken on income tax policy, it is proposed the pay policy will continue to be progressive and to provide the greatest protection to those on the lower rates of pay.

The public sector workforce plays a key part in delivering the Government's Purpose and all of our National Outcomes. The pay policy contributes towards this through the following National Outcomes:

• Economy - we have a globally competitive, entrepreneurial, inclusive and sustainable economy.
• Fair Work and Business - we have thriving and innovative businesses, with quality jobs and fair work for everyone.
• Human Rights - we respect, protect and fulfil human rights and live free from discrimination.
• Poverty - we tackle poverty by sharing opportunities, wealth and power more equally.

As highlighted in the Programme for Government, responding to the COVID-19 pandemic is having an impact across Scotland, including on progress towards the National Outcomes. Of the Four Harms of COVID^[3] the economy is core to the pay policy: "The economy is central to our wellbeing, whether through the provision of direct services and goods, provision of taxes to fund public services like health and welfare, or by providing opportunities for employment and income. These have all been impacted by COVID-19. Some of the changes we've seen may stay with us for some time."

The primary purpose of the pay policy is to set pay increases in a way which is fair, reflects the real life circumstances people face, while helping to sustain public sector jobs and protect public services. Within the tight financial position resulting from the continuing real terms reduction in the Scottish Government's resource budget, the pay policy is designed to ensure that pay rises are affordable now and in the future.

In developing the 2021-22 pay policy, we have taken account of the cost of living^[4] and continue to provide measures to protect the lower paid, while ensuring public sector budgets remain in balance. We have also taken in to account the Scottish Government's progressive approach to the Scottish Rate of Income Tax.

In light of continued economic uncertainty as a result of the pandemic, EU Exit, and the delayed UK Budget, the pay policy for 2021-22 will be a single-year policy. The 2021-22 pay policy is based on the following principles:

• To continue the journey to address pay restoration by providing increases for public sector pay settlements which take account of inflation within a tightly constrained financial climate; so that pay remains affordable and sustainable; and, through the targeting of resources, that value for money is secured. This will be delivered by:
  • continuing to protect the lowest paid through Ministers' commitment to setting a minimum hourly rate taking cognisance of the real Living Wage.
  • providing an above inflation increase to protect the lowest earners.
  • continuing to constrain increases for the highest earners.
• To deliver top-class public services, protect jobs and preserve pay progression in return for continuing constraint on overall paybill costs and flexibility to help ensure productivity improves.
• To continue to work towards making sure that pay is fair and non-discriminatory.
• To provide flexibility for public bodies to identify the use of paybill savings to submit pay proposals that address evidenced workforce and pay inequality issues.

The proposed key features of the policy for 2021-22 are:

• A single-year pay policy, although public bodies may make a case to submit multi-year proposals.
• Continuing the commitment to paying at least the real Living Wage.
• A progressive pay policy which provides an above inflation increase for all those earning below £80,000 and further protects lower and middle earners:
  • a guaranteed cash underpin for those with a full-time equivalent salary of £25,000 or less.
  • a guaranteed percentage pay uplift for those with full-time equivalent salaries of more than £25,000 and up to £80,000 with a higher percentage increase for those with a full-time equivalent salary of more than £25,000 and up to £40,000.
  • a cap on the basic award^[5] increase for all staff with full-time equivalent salaries of £80,000 or more.
• Retention of the flexibility for employers to use savings, up to a fixed percentage of baseline paybill, where they propose to restructure existing pay systems to address evidenced workforce or equality issues – including addressing pay coherence or recruitment and retention.
• Provision to carry forward unused flexibility from 2020-21.
• Preserving the discretion for individual employers to reach their own decisions with staff and trade unions about pay progression.
• Retaining a cap on progression increases for Senior Appointments including Chief Executives and senior managers in NHS Scotland.
• The costs of any low pay measures and paying progression remain outwith the standard remit elements.
• Continued suspension of non-consolidated performance payments (e.g. bonuses).
• Maintaining the commitment to No Compulsory Redundancy.
• Introducing the discretion for individual employers to consider working towards standardising to a 35 hour working week.
• Continuing the expectation for a 10 per cent reduction in the remuneration package of new Chief Executive appointments.