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23 April 2018
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PUBLIC SECTOR PAY CAP COULD DAMAGE SERVICES, SAYS THINK TANK

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Public sector pay is at 'historically low levels' © iStock

27 September 2017 | Herpreet Kaur Grewal


Further public pay restraint would take pay to “historically low levels” relative to the private sector, according to a report by the Institute of Fiscal Studies.

 

The think tank’s report states that although average weekly public sector pay has fallen by 4 per cent in real terms since 2009–10, the fact that private sector pay has done similarly badly since 2008 means that the gap between public and private sector pay is just getting back to its pre-recession level.

 

This means that further public pay restraint would take public pay to historically low levels relative to that in the private sector. This would in turn make it harder to recruit, retain and motivate high-quality staff, with knock-on effects on the quality of schools, hospitals and other public services.

 

The report’s findings include:

  • •  After controlling for differences in workers’ characteristics such as education and experience, there is little difference between the pay of public and private sector workers. Continued public sector pay restraint would likely push pay in public sector relative to the private sector to historically low levels.
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  • • Compared with private sector pay, public sector pay is lowest for highly educated workers. For the almost two-thirds of public sector workers who have completed higher education, pay is slightly lower compared to the private sector than it was prior to the recession. This group has also seen particularly large increases in the contributions they have to make to their workplace pensions. Public sector pay is also lowest compared to private sector pay in London and the South East.
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  • * It is therefore among better-paid and higher educated public sector workers – such as teachers or senior civil servants – and those working in London and the South-East, that we might expect greater recruitment and retention issues and a more pressing need for pay increases.
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  • * Public sector workers continue to receive considerably more valuable workplace pensions than the private sector on average. In 2016, 83 per cent of public sector workers received an employer contribution to their pension worth 10 per cent or more of their salary, compared to only 11 per cent of private sector workers.

  • • Relaxing the pay cap and increasing public sector pay in line with inflation or private sector pay would cost public sector employers around £3 billion a year in 2018–19, rising to around £6 billion a year in 2019–20. Because of the relative sizes of the workforces, the cost of increasing pay for police or HM Forces is much smaller than increasing pay in the NHS, schools or the civil service.    

 

The research was funded by the Economic and Social Research Council.