Statement to Dáil: New Entrant Pay Scales in the Public Service

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Deputies, I would like to thank you all for the opportunity to talk to you this afternoon on the issue of new entrant pay scales for public servants. I believe the context for the introduction of such scales by the then Government in 2011 is important and merits reflecting and repeating here today

In order to address the calamitous fiscal crisis of that time, between 2008 and 2014 nine ‘budgetary events’ worth €30bn of consolidation measures were announced. Two-thirds of the adjustment burden fell on expenditure with the remainder on tax whilst approximately half of the total adjustment took place between 2008 and 2010 with the remainder over the 2011-2014 period. A fiscal crisis of this size is without precedent in Ireland’s recorded economic history and has few modern parallels at an international level.

With public service pay comprising 35% of total expenditure in 2008, changes to both the numbers employed and the rates of remuneration formed an important part of Ireland’s overall fiscal consolidation. Between 2009 (gross) and 2014 (net of the Pension Related Deduction) there was a decrease of €3.7bn or 21% in the public service pay bill. Of this €2.1bn was delivered through Financial Emergency Measures in the Public Interest actions on public service pay. The balance of the savings are attributable to reductions in numbers, elimination of various public service allowances, and productivity measures underpinned by Public Service Agreements.

Additionally, the then Government introduced a series of measures as part of the National Recovery Plan in November 2010 that required all public servants to start on the minimum point on the scale and a 10% reduction in the pay of all new entrants to the public service.

Thankfully, through sacrifice of our citizens, difficult decisions by Governments, the Programme for Support from our international partners and continued sustainable and prudent management of the economy by this Government, we have now reached a far better place.

The strength of the recovery has exceeded expectations. At the labour market trough in 2012, over 340,000 jobs had been lost with the unemployment rate reaching 16 per cent. Strong employment growth has seen 9 out of every 10 jobs lost during the recession recovered with the unemployment rate now down to 5.9 per cent and fast approaching full employment.

While momentum in the economy remains strong, there are several clouds on the horizon. Internationally, the UK’s decision to exit the EU, an increase in protectionist measures and changes in other jurisdictions that affect the competitiveness of Ireland’s corporate tax regime, are all of particular concern to Ireland as a small highly globalised economy. One of the keys to addressing these challenges and to ensure we never return to the dark economic place we have come through is to ensure our public finances continue to be managed in a prudent fashion. The latter is of particular importance considering that our public debt levels remain around 100 per cent when scaled by modified GNI.

Despite this tremendous progress we still carry major public policy overhangs as legacies from the crisis. We need look no further that our current housing situation to realise that this country and its people paid a heavy price, and continues to pay a heavy price, for the fiscal crisis and the economic mismanagement that contributed so significantly to the depth of that crisis.

Indeed, the Minister for Finance and Public Expenditure and Reform in securing the passage of the Public Service Pay and Pensions Act 2017, which provided for the implementation of the terms of the Public Service Stability Agreement 2018-2020, it also made statutory provision for the unwinding of the Financial Emergency Measures which have applied to public service pay and pensions from 2009. However, those measures will not completely unwind until July 2022, some 13 years after initial implementation. This is testament in itself alone, of the depth of the fiscal crisis we have come through and what can happen when the public finances are not managed sustainably and prudently.

During the passage of the of the Public Service Pay and Pensions Act 2017 (PSPP Act) through the Oireachtas, the Government accepted an amendment at Section 11, that within 3 months of the passing of the Act, the Minister would prepare and lay before the Oireachtas a report on the cost of and a plan in dealing with pay for new entrants to the public service. Also, as part of the negotiations last year leading to the Public Service Stability Agreement 2018-2020 (PSSA), we acknowledged issues of concern relating to the increased length of salary scale for post 2011 new entrants. We committed to an examination of the issues and to enter discussions with the parties to the Agreement in relation to it. The Agreement provided for an examination of remaining salary scale issues in respect of post January 2011 recruits at entry grades would be undertaken within 12 months of the commencement of the Agreement.

This was a significant body of work and staff resources from within the Irish Government Economic Evaluation Service (IGEES) were assigned to collect, collate and examine the data and provide detailed point in time costs associated with the measure. As the Department responsible for reconciling the various demands made on the Exchequer, it is at a minimum necessary, to quantify, evaluate and consider whether within the resources available to us as a nation, that any level of spending increases being advocated is sustainable and affordable and can be prioritised among the many pressing social and other needs of Irish society.

That is not to say that all requests for additional expenditure are without merit, this government appreciates that extra funding is necessary and must be committed in certain areas – for example to increase capital spending by €1.5bn to provide the homes, hospitals and other infrastructure investments that our society needs. What is important however is that additional spending proposals are carefully thought through by the Oireachtas and evaluated in advance so that the consequences and trade offs are known before any budgetary decisions are taken.

In fact this is exactly the approach we have taken when examining the issues of concern in relation to the increased length of the salary scale for post January 2011 entrants to the public service. This is what we agreed with Unions in last year’s pay talks and this is the process that is underway now

In this regard I emphasise to the House that we cannot say, on the one hand, that we need to ensure the public finances are managed in a stable way and that we must not repeat the mistakes of the past, while telling ourselves, on the other, that we can meet every individual demand. We will not be able to meet the needs and demands of all groups. We have a public service pay agreement for three years and it is in year one. We are committed to engaging with everyone in good faith, but if we are saying we need to keep the public finances stable and ensure we can afford to meet the commitments we have made, we have to understand there are responsibilities which come with that. The Government is committed to discharging those responsibilities.

I believe it worth outlining the main findings of the Report to the Oireachtas which were as follows:

Finding 1

The first finding of the report is that there has been strong recruitment since 2011 to the estimated 237 recruitment grades across the public service, with over 60,500 so called ‘new entrants’ or 19% of the public service currently working in these grades.

This includes:

• over 16,000 teachers
• nearly 5,000 SNAs
• almost 10,000 nurses

Actual recruitment would have been higher when allowance is made for those who were promoted from or left new entrant grades. This confirms the finding of the Public Service Pay Commission that there was no general recruitment problem, and that at lower pay levels there is a substantial pay premium in favour of public servants.

Finding 2

The second finding was that variation in the remuneration package offered to prospective employees in line with the economic cycle is standard practice across the labour market. Within the public service entry level starting salaries have improved under collective agreements that have been progressively weighted towards lower paid entry level employment. For example the Administrative Officer scale for recruitment of graduates to the civil service has increased by 5.4% or €1,611 in the two years between January 2016 and January 2018.

Finding 3

The third finding is that estimated cost associated with a two point incremental adjustment for the 60,500 staff identified are significant at approximately €200m. Importantly this cost of €200m is not included in the overall cost of the Public Service Stability Agreement which is estimated at €1.1bn between 2018 and 2021. Work is ongoing to refine these annualised costs by grade and by sector to improve the accuracy of this estimate.

Finding 4

Finally the last finding is that individual benefits would be considerable. Based on the average across all sectors, a two point adjustment would equate to an additional €3,302. This would be on top of the pay benefits under the Public Service Stability Agreement of between 7.4% – 6.2% (up to 10% for new entrants post 2012) which were already weighted in favour of new entrants and the lower paid.

The Report to the Oireachtas makes clear this Government’s commitment to working with the parties to address these issues, in accordance with the terms of the PSSA and taking account of the significant costs involved.

We started examining these issues with the Parties as soon as the Agreement was ratified back in October of last year. Discussions have been ongoing since then, and we met with Unions on the 27th of April to brief them on the findings of the report. Further engagement will take place on this issue in early June.

To close I would like to thank Deputies once again for the opportunity to discuss these issues. I looking forward to hearing their views on this matter.