To wit, the old joke about three boys in the school yard arguing whose father is the fastest. The first says his dad, a Formula 1 driver, is surely the swiftest. The second says his father, as airline pilot, moves at much greater speed.
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“Nah,” says the third boy, “my dad is the fastest. He’s a public servant – he finishes work at 5pm and gets home by 4.15!”.
The news that pay rises for workers in the public sector are now outstripping those in private industry will add further fuel to the fire of these critics.
According to a survey of 2,000 UK employers carried out by the Chartered Institute of Personnel and Development (CIPD), public sector pay awards have overtaken those in the private sector following hefty increases approved by the UK Labour Government.
Yesterday’s latest Labour Market Outlook from the CIPD shows that public employees have gone from the sector with the lowest median pay awards of 2.5% to the highest at 4% in the course of just three months. The next quarter will see even greater awards of 5%, versus 3% in the private sector for the next three and 12-month periods.
The disparity is in good measure down to expectations that private sector employers will be reluctant to hire new people and increase the salaries of existing staff after Chancellor Rachel Reeves said in last month’s Budget that National Insurance (NI) contributions paid by employers will jump by a collective £25 billion, while the minimum wage will go up by 6.7% from April. That followed pay increases of between 4.75% and 6% for millions of public sector workers announced by Ms Reeves shortly after taking office in July.
The shift has brought an end to four years in which public sector pay awards lagged those in the private sector, according to the CIPD. The situation felt particularly acute because it played out through one of the biggest inflationary spikes in living memory, triggering industrial action across the UK which Ms Reeves hopes to quell through more generous pay deals.
Lots of questions are now being asked as to how cash-strapped governments at national and devolved level will pay for their share of higher NI contributions. Meanwhile, the Bank of England will be closely watching whether any dampener on private sector pay growth is adequate to counteract inflationary pressures elsewhere.
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SNP Finance Secretary Shona Robison has already cut £500 million from the Scottish budget this year and is due to publish next year’s budget in December.
About half of that budget – approximately £24bn in the last financial period – is spent on the public sector pay bill in this country. And according to an analysis published in May of this year by the Scottish Government, the trends on public sector pay do not precisely match up with the scenario painted by the CIPD’s numbers.
Looking only at full-time workers, the study found that public sector employees both in Scotland and across the UK tend on average to be better-paid than the private sector. Furthermore, the pay differential between the public and private sector has increased since 2019 – even prior to the awards announced by Ms Reeves – and is greater in Scotland than for the UK.
After tax, the median pay in 2023 for a full-time public sector employee in Scotland was around £1,500 higher than in the UK, up from around £400 before the pandemic. Outside of London, Scotland has the highest average public sector pay of anywhere in the UK.
But it is significant to note that this is not true across all parts of income distribution, particularly when part-time workers come into the equation.
According to the analysis from the Scottish Government, higher-paid public employees tend to earn “similar” or a bit less than their private sector counterparts while those in the lower half of income distribution earn on average about 20% more than they would in the private sector.
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That’s the relatively positive news for those on the lowest incomes in Scotland’s public workforce, including many of the women who dominate employment in the public sector. Elsewhere, however, the outlook isn’t so good.
In addition to the increase in employers’ NI contributions, Ms Reeves’ seismic Budget also slashed the threshold on when these payments kick in, down from earnings of £9,100 to £5,000 per annum.
More than 200 members of industry group UKHospitality – another sector where female workers are in the majority – wrote to the Chancellor at the weekend warning of business closures and job losses as a direct result of the tax-raising measures announced in the Budget. The group estimates that the change to the threshold may be four times the cost of the headline NI contribution rate that is going up by 1.2 percentage points to 15%.
“The changes to the [National Insurance] threshold are not just unsustainable for our businesses, they are regressive in their impact on lower earners and will impact flexible working practices which many older workers and parents rely upon,” the group said. “Unquestionably they will lead to business closures and job losses within a year.”
With public services that everyone requires in dire need of investment, it would be churlish and unproductive to suggest that private sector workers are being sacrificed for the “greater good”. That, however, will not stop some people from seeing it that way.
