THE GREAT PAY GAP
WORKERS in the public sector will earn 11 per cent more on average than those in the private sector after Philip Hammond signalled the end of the Government’s pay cap.
The Institute for Fiscal Studies said that even after years of pay restraint, workers employed by the State now earn almost 13 per cent more on average per hour compared with private sector staff.
If the public sector pay cap remained in place, this would have fallen to around 7 per cent by 2020/21. But after the Budget spelled the end for the cap – which has limited annual pay rises to 1 per cent for the past six years – the difference will settle at around 11 per cent, the IFS forecast.
And the figures do not take into account that the public sector benefits from goldplated final salary pensions, which are virtually unheard-of now in the private sector.
The higher wages are expected to cost the taxpayer £2.8billion a year by 2020. Of this, £900million will go towards the NHS and £800million to schools, with £1.1billion to other public sector workers, the IFS said.
The analysis casts doubt on claims that austerity is causing widespread hardship for State workers.
The forecast, unveiled at a conference in London yesterday, is based on the assumption that public sector pay will start to rise at around the same level as private sector pay. Carl Emmerson, deputy director of the IFS, said pay restraint had brought the wage gap back to where it was before the recession. ‘On average, public sector workers get paid more per hour than private sector workers,’ he said. ‘ That’s not surprising – they have on average higher levels of education, so for example you would expect a surgeon to get paid more than the average private sector worker.
‘Public sector pay restraint since 2010 has brought this ratio back to pre-crisis levels – it’s unwound the unintended increase in public sector pay relative to private sector pay that occurred during the Great Recession.’ At one point, in 2011/12, public sector wages were 18 per cent more than the private sector’s.
But Mr Emmerson said with the pay cap in place, Britain ‘would have seen the ratio fall below anything we’ve seen for the last 20 years’, adding: ‘Clearly this would risk problems of recruitment and retention in the public sector and making it increasingly difficult for the government to deliver the public services that it wants.’
He said that has now changed after the Chancellor promised a Treasury-funded pay rise for some health workers, raising expectations that the public sector will also benefit – and prompting the Office for Budget Responsibility to raise its forecast for wage growth for State workers.
Unions had welcomed Mr Hammond’s commitment to cover the cost of higher public sector wages in his Budget speech.
‘ If that money’s spent well, recruitment and retention problems might remain around their current levels,’ Mr Emmerson said. ‘This is all good news, but the difficult thing is it costs money – an extra £2.8billion in 2020/21.
‘The question is, will the extra funds come from the Treasury or will the public sector employers have to find them from their existing budgets?’ The wage comparison is based on a crude measure of average hourly wages for the 5.1million working in the public sector, and the 26million in the private sector.
The public sector tends to be more highly educated, whereas there are more lower-paid workers on the minimum wage in the private sector.
The pay gap was last as low as 11 per cent in 2001/02. It was just over 12 per cent in 2007/08 when the financial crisis hit. This caused a collapse of average wages in the private sector while public sector wages were protected, causing the gap to widen.
Last night Chloe Westley of the TaxPayers’ Alliance said: ‘Taxpayers are grateful to public sector workers and expect them to be paid fairly.
‘However, too often we forget that most people who work in the private sector – and whose taxes pay for the salaries of public sector workers – haven’t seen a pay increase in years.
‘The Government should give everyone, in all sectors, a break by cutting taxes, and allow people to keep more of the money they earned so they can provide for their family and save.’
‘The difficult thing is it costs money’
AS the Institute for Fiscal Studies issued a gloomy prognosis of the public finances yesterday (pay attention Mr McDonnell), one issue stood out: public sector workers are predicted to earn 11 per cent more by 2020 than their private sector counterparts, who face another earnings squeeze.
Notably, the figures do not take account of the fact that the public sector enjoys generous guaranteed pensions that are not available to private employees. Yes, as Mr Hammond suggested on Wednesday, nurses are arguably a special case. But as night follows day, you can bet that when they get a generous pay rise, every other part of the public sector will demand the same.
Many public workers do a wonderful job. But they need to remember that without a flourishing private sector there would be no money to pay for any increase at all.