Article for the Sunday Business Post

By IMPACT general secretary Shay Cody

Published Sunday 19th February 2012

IMPACT officials spend most Februaries travelling the country speaking to members attending their branch annual general meetings. This year is no different.

But our 2012 message to our mostly public service membership is very different to any other year. And the message is very stark.

We’re telling them that their employer – the Government – is virtually broke. Regardless of how we got to this sorry state, or who’s to blame, the gap between Government income and spending was over 10% of GDP last year. And, despite the absence of growth in the economy, the troika says this must fall to 8.6% in 2012, then to 5%, 4% and less than 3% in 2015.

We’re telling them that we would still have to bridge a huge deficit even if bank borrowing and related interest were set aside. Above all, we’re saying that, as long as the public finances are in this state, there will be unrelenting pressure to erode public service numbers, salaries and working conditions.

IMPACT has had to confront similar realities in companies like Aer Lingus and Eircom, where costs were extracted mainly through a mix of staff cuts and new working practices aimed at sustaining services and market share as income, investment and staff numbers fell.

Extracting costs becomes a top priority when your employer is broke. But a recent CSO study confirmed that most Irish companies facing this challenge use the instrument of pay cuts sparingly, if at all. Staff reductions and changed work practices are the preferred measures.

The public service, where pay cuts and a so-called ‘pension levy’ have cut gross incomes by an average of 14%, with a further 10% cut for new entrants, bucks this trend to a significant extent. While the public servants I meet at AGMs understand the need for further substantial cost extraction, they are determined that it can be done without further erosion of their pay.

We are currently half way through a Government programme to cut the public service workforce by 40,000 and slash €3.5 billion off the pay and pension bill by 2015. Maintaining the range and quality of core public services in this context requires significant changes to working practices, some of which – like reduced dependence on overtime and other premium payments – are themselves cost-reducing.

Change on this scale requires a framework, not unlike those developed in Eircom, Aer Lingus and other cost-extracting companies. The much maligned, equally misunderstood, and frequently misrepresented Croke Park agreement is the framework we have.

How misunderstood? Take the recent furore over public service retirements. Readers of most newspapers probably don’t know that there is no redundancy or ‘early retirement’ scheme and no facility for public servants to get extra payments or pensions.

Or that public servants who leave will be subject to an average 4% pension cut plus, for those who retire early, substantial actuarial reductions to reflect their reduced years of pension contributions and any early payments.

This means only those already at, or very close to, retirement age will leave; people who, regardless of their experience and value, would be gone in the next year or so anyway. And there’s seldom any mention of the Croke Park measures that give managers the tools to prioritise and maintain services as staff exit the sector.

Croke Park is an important but very simple agreement. Public servants must co-operate with the extraction of €3.5 billion of payroll and pension costs. In return their salaries won’t be cut again and compulsory redundancies will be avoided.

Staff are delivering. In its first year of four, Croke Park measures directly led to savings of over €680 million made up of payroll and efficiency savings plus cost-avoidance initiatives.

Last November, the Croke Park implementation body outlined additional reforms achieved and underway, and reported concrete progress on leave standardisation, rationalisation of services and agencies, redeployment, shared service initiatives, and many other local and national reforms. In June, its second annual report will quantify the savings delivered in the year to mid-2012.

The savings so far achieved, mostly from reduced staffing, have exceeded Government and troika targets. But, as the deal approaches its second anniversary, significant cost extraction is also being delivered directly through reforms in organisations large and small.

These include €50 million a year from the redeployment of surplus teachers, new rosters in medical labs (€7 million a year), changes in radiography services (€3.5 million a year), changed prison work practices (€20 million a year), almost €1 million saved across Saint Michael’s House disability services, annual savings of €220,000 in Our Lady’s hospice in Dublin, €685,000 annual savings from Teagasc, and a 20% cut in local authority staffing with €16.5 million of payroll and other savings in Fingal county council and €700,000 in Galway city alone. There are many, many more examples.

Critics of the agreement often discount the huge savings from staff reductions and complain that the reforms – in Roy Hattersley’s recent words “more demanded than defined” – are too tame and too tardy.

But, again, the pattern is similar to that in private companies that find themselves in dire straits. Staff cuts bring the biggest and earliest cost extractions with changed work practices, to maintain output and add savings, following later in the process. And unnecessary pain is avoided because companies recognise they need staff on board in tough times. So they concentrate on what’s really vital.

Sick leave and its management will come under the spotlight in 2012 and, at the end of this month, we’ll also see the outcome of a management review of allowances and premium payments. This has the stated objective of discontinuing certain payments for which there is no business case; in other words, allowances that don’t reflect unsocial hours, valuable qualifications, extra responsibilities or particularly arduous work.

This exercise will reduce spending on allowances and premium payments by 5% this year leading to savings of 10% by 2014. The Government also intends a 10% reduction in overtime spending in 2012, following a fall of 5% in the agreement’s first year.

Croke Park is a valuable if demanding protection for public service workers. Although they’ve already seen substantial cuts in their pay and pensions, few IMPACT members disagree when they’re told that workers in Greece, Portugal, Italy and Spain would appreciate a similar cost extracting framework.

But it’s a valuable protection for taxpayers and citizens too. By and large, its value is recognised by ministers and elected representatives, not just because it’s delivering relatively rapid and orderly cost extractions with minimal service disruption, but also because it’s adding value to Ireland’s international reputation.

This was acknowledged in an October 2011 OECD report, which said the agreement “has contributed to social cohesion by providing a collectively agreed basis for reform.” Yet Croke Park continues to attract sometimes hysterical criticism from the left, right and mainstream.

Those on the extreme left ignore, or seek to exploit, the realities of our country’s financial and budgetary situation. Those on the extreme right, in Ireland and across the globe, will continue to criticise public services regardless of their shape, size, cost or performance.

But the often ill-informed criticism from the mainstream is more disappointing and disturbing. Not least because we have yet to see a coherent alternative put forward that would equal Croke Park’s record of, and further potential for, cost extraction and service reconfiguration through the most rapid, far-reaching and conflict-free changes in public service work practices since the foundation of the state.

Shay Cody is general secretary of IMPACT, Ireland’s largest public service trade union. He also chairs ICTU’s Public Services Committee and is a member of the Croke Park implementation body.