Removing the public sector pay cap would be ‘mixed blessing’ for NI

THE potential lifting of a pay cap for the public sector would be a “mixed blessing” for Northern Ireland, according to one economist.

Speculation is mounting that Prime Minister Theresa May is preparing to end the long-standing cap on pay rises in the public sector after a disastrous General Election saw the Government lose its House of Commons majority.

However, Dr Esmond Birnie of the Ulster University Economic Policy Centre, says while the lifting of the cap would be welcomed by the some 200,000 public sector workers here, it could lead to an acceleration in civil service cutbacks, and spending being moved away from elsewhere.

“There are strong suggestions that the London government is about to relax the public sector pay cap. That cap has been in place since 2010,” he said.

“There are several reasons why removal of the cap could prove a mixed blessing. Higher public sector pay would have to be paid for out of the funding resources (the Northern Ireland spending block) which could otherwise have been used to pay for public services.

“In rough terms, each 1% increase in pay represents a public expenditure cost of about £50m annually.”

Public sector employment represents 27% of the workforce here. That’s considerably higher than the UK average of 17%.

Meanwhile, lifting the 1% public sector pay cap will cost “a lot of money” but it cannot be kept in place forever, the Institute for Fiscal Studies (IFS) has said.

IFS director Paul Johnson said if public sector pay were to rise in line with inflation for the next three or four years it would cost the public purse £6bn to £7bn more than continuing with the cap.

Cabinet minister Chris Grayling said this week that the Government wanted to “provide people with additional pay” when the economy allowed for it, and stressed the Tories had learnt the lessons of the election.

Mr Johnson highlighted the potential cost of lifting the cap, telling BBC Radio 4’s Today programme: “It depends, of course, how much they lift it by, but there are five million workers in the public sector and the pay bill is well over £150bn a year, so that makes it, in a sense, the biggest single expenditure item that government has.”