Pay in the British NHS: a local solution for a national service?

An important component of the reforms of the British National Health Service (NHS) has been devolution of a previously highly centralised pay bargaining system to the local provider level. As the wage bill is by far the single largest item of health care expenditure, the implications of this change may be far-reaching. This article surveys the available theory and evidence from an economic perspective. It reviews the development of pay determination mechanisms in the NHS and the extent to which local pay has been adopted since the reforms were introduced. It then considers the theory of local pay and general evidence on local pay variations in the UK, before turning to the available evidence on local labour markets in the health care sectors of the UK and USA. It concludes with a discussion of the policy and research implications of current developments on local pay bargaining in the NHS. In particular, it suggests that judgements over the success or failure of local pay bargaining will concern: first, whether the weakened monopsony position of the NHS at national level results in higher pay for the more powerful employee groups; second, whether fragmentation of bargaining weakens the negotiating and lobbying power of national trade unions and professional organisations; third, whether competition between providers leads to higher or lower costs; and fourth, whether any efficiency gains from local bargaining outweight the higher transaction costs involved.