Bank chief attacks pay policy

In an unusual break with Whitehall protocol, the new deputy governor of the Bank of England has attacked the Government's public sector pay policy.

Howard Davies, former director general of the CBI who was appointed to the bank in August, told union representatives that the strategy had "worn out" and needed to be more flexible. For the last two years, and for the foreseeable future, ministers are insisting the pay bills of government-funded organisations remain static.

But Mr Davies told representatives of the Banking Insurance and Finance Union at the Bank, which employs about 3,500 staff, that the policy had caused problems.

"Like any pay policy it wears out and starts to create perverse incentives and local problems, and we have had some of those in the bank," he said.

"I hope that before long they will make it more flexible, because it is starting to act as a constraint on us."

The remarks appear in the latest issue of BIFU Report and betray concerns among senior government officials about the rigid policy. Mr Davies's comments refer to the Bank's recruitment difficulties in certain grades because salaries are not competitive with rates elsewhere in the finance sector.

Although individual pay rises varied, most of the staff at the bank's headquarters last year received an increase of 1.25 per cent plus a bonus of pounds 175. Most clerical staff with 10 years' service would earn a total of pounds 17,000 to pounds 20,000.

Government policy also restricts management's ability to extend the principle of performance-related pay, according to union sources.

A spokesman for the Bank of England said Mr Davies's comments came in a question-and-answer session at the conference: "The Bank always adheres to public sector pay policy and will continue to do so".