Private sector gets a pay rise – but it won’t last long

Unions warn of probable recruitment crisis if public pay remains capped

Private sector earnings are growing at more than three times the rate in the public sector, prompting unions to warn of a dangerous disparity in the labour market caused by the Government’s policy of pay restraint for state employees.

Figures published today suggest weekly wages in the private sector are now growing at an annual rate of up to 3.6 per cent – the fastest since the early 2000s.

The forecast by the Resolution Foundation think-tank said there was welcome evidence of a shift in the employmentmarketawayfromgrowth in customer service or care roles towards the creation of higher-paid managerial jobs.

But the body warned that much of the pay growth can be attributed to rock-bottom inflation rates, meaning it will be imperilled once the cost of living starts to rise as expected towards the end of the year.

Laura Gardiner, senior policy analyst at the think-tank, said: “Workers across the UK are enjoying a much-needed mini pay surge after a painful six-year squeeze. And while much of this growth is down to low inflation, there are welcome early signs too of a shift towards higher-paid job creation. But it will be far harder to maintain this ‘catch-up’ growth once inflation starts to return.”

Unions said the improvements forworkers in the wider economywere in starkcontrast to the 2.5 million employees in the state sector, where the Chancellor George Osborne this year capped annual pay rises at 1 per cent for the next four years – an effective pay cut if inflation rises to its target rate of 2 per cent.

A pay freeze and reforms under the Coalition saved £8bn over the last parliament and Mr Osborne is seeking a further £20bn reduction in public spending by 2019.

Trade union leaders said they welcomed the forecast of rising wages across the economy but warned that public sector staff were being shut out of any reward for delivering huge efficiencies.Theywarned that the combination of rising earnings in the private sector with a decade of pay restraint for state employees risked leaving crucial front-line services short of skilled staff.

Dave Penman, general secretary of the FDA union for senior public servants and professionals, said: “Public sector workers who have delivered record-breaking efficiencies and helped turn the economy around are being excluded from this economic upturn.

“If private sector earnings continue to outstrip public sector pay at this rate, the Government will struggle to recruit and retain the talented workers needed to make its policies a reality.”

The Public and Commercial Services union said that even with the private sector wage growth, millions were still earning below a living wage and warned that civil servants have suffered a real-terms pay cut since 2010.

A spokesman said: “After years of following the Government’s lead and keeping pay down to poverty levels, it’s welcome if we’re now seeing increases in the private sector. But there’s a still long way to go before we have a truly living wage and in the meantime public sectorworkers are being hit by the double whammy of pay caps and tax credit cuts.”

The Resolution Foundation said that despite wages now growing at the fastest rate since 2002, average earnings still remain several years off a return to pre-crash levels and are £110 a week lower than where they would have now stood if there had been no financial crisis.

The organisation said there were also warning signs for the longer-term health of the economy with the amount of training being undertaken by employees falling and the number of graduates in nongraduate posts rising.