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Autumn Budget 2017: what next for public sector pay?

Posted on 15 November 2017 by Robert Wishart, Analyst .
Tags: Income and work, living standards, public services

In 2010, public sector pay was frozen for two years for all but the lowest paid workers, and from 2013 pay rises have been capped at 1%. Recent analysis by NatCen, featured on Channel 4’s Dispatches, investigated what this means for public sector workers.

Our research has revealed the changes in real earnings - how much earnings are worth taking into account changes in prices (inflation) - since 2010 for specific public sector workers, namely: nurses, police officers, firefighters and teachers. In all occupations considered, prices have been rising faster than earnings.

Fig 1BLOG

This means that in reality, many workers have had a real terms pay cut. Firefighters in particular, already some of the lowest paid in frontline public sector jobs, have been badly affected. To return to the same level of earnings that they enjoyed in 2010, firefighters would need a considerable 9.2% pay rise.

To assess the impact of this on living standards, we used the Minimum Income Standard (MIS) calculations from the Centre for Research in Social Policy (CRISP) and the Joseph Rowntree Foundation (JRF). This measure estimates the income needed to have an acceptable minimum standard of living. Since 2010, the proportion of workers living in households with income less than the minimum threshold has risen for each of the occupations we considered.

Fig 2BLOG

It’s important to be aware of the limitations of these findings. Our calculations assume all adults in these households worked full time (37.5) hours a week, whereas in reality some public sector workers (such as police officers) work longer hours and therefore earn more. Our analysis doesn’t include any income from benefits which will have a big impact on households with lower earnings. In spite of these drawbacks, the trends over the past 7 years are likely to be true – living standards have fallen for public sector workers.

So ahead of the Autumn Budget next week, can the Chancellor afford concessions to public sector workers? Public sector pay is expensive – at £181bn a year it’s approximately a quarter of all government spending. The Institute for Fiscal Studies estimates that removing the pay cap would cost around £6bn a year, a figure some would argue is too expensive in the age of austerity. To meet the cost of lifting the cap, the government would need to raise taxes, cut spending or borrow more.

Even without considering the question of fairness, real terms pay cuts could have a real impact on public services. Many pay review bodies have been reporting recruitment and retention problems, and this will surely be exacerbated if pay restraint continues. Furthermore, studies of police and hospital staff have shown that when pay growth is low, pay rises in other occupations in the local area can have a significant impact on quality of public services.

There are no easy answers to the issues surrounding public sector pay, but if the current restraint on pay continues, public services may not be able to operate effectively. The Chancellor may say that the government can’t afford to increase public sector pay, but the real question is: can the government afford not to?

 

Follow me on Twitter: @RobbieWishart 

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