Targeted increases in public sector pay are needed to enable the NHS, schools, the armed forces, the police, the civil service and prisons to hold on to and hire workers in the face of competition from the private sector, a thinktank has said.
The Institute for Fiscal Studies said that after a decade of wage restraint, the government now needed to respond to growing evidence of recruitment difficulties.
It said public sector earnings were 2.5% below their 2010 level after inflation was taken into account, leading to problems particularly in London and the south-east, where private sector earnings are highest.
Austerity measures meant the number of people employed by the government had fallen by around 310,000 since the start of 2010, with particularly notable reductions in public administration, the armed forces and the police.
“The public sector pay cap has now been lifted, no department is facing a day-to-day budget cut between this year and next and private sector pay is now recovering. This suggests that pay increases for public sector workers are likely to be on the way,” the IFS said.
“Given pay review bodies are reporting recruitment and retention problems in a number of important public sector occupations, there is now a good case for increases in public sector pay targeted at those areas facing particular difficulties.”
Over the past year, pay review bodies have reported recruitment or retention problems in many parts of the public sector, including the NHS, schools and prisons. Both Labour and the Conservatives have announced plans to boost public spending as they seek to win over voters in the election campaign. The state currently spends £190bn a year on the wages of its 5.3 million public sector employees, 60% of whom work either in the NHS or education.
The IFS said the reason given for pay restraint in 2010 – the gap that had opened up between public sector and private sector pay during and immediately after the deep recession of 2008-09 – no longer applied. It said the difference between average pay in each sector had now fallen to below pre-crisis levels.
Pay for public sector workers was better protected than that for private sector staff when the recession was at its worst, but the coalition government elected in 2010 imposed significant pay restraint that reduced average public sector earnings in the second quarter of 2014 to 4.7% below their level at the start of 2008.
The IFS said public sector earnings had risen by about 2% in real terms since the end of 2017 but were not yet back to pre-crisis levels.
Annual average earnings growth currently stands at 3.6% and the official unemployment rate has fallen to below 4%, its lowest level since the mid-1970s. The IFS said the legacy of Treasury-imposed pay restraint was the smallest gap between public and private sector wages since the early 2000s.
It noted there were big regional variations. Public sector pay was lower relative to that in the private sector in London and the south-east, which the thinktank said could lead to particularly acute shortages and recruitment challenges in those areas.
