IFS: Need for pay rises ‘most pressing’ for staff like senior civil servants

Written by Tamsin Rutter on 19 September 2017 in News
News

Report predicts continued public sector pay restraint will lead to recruitment issues for employers of London-based, highly skilled workers

An increase to public sector pay in line with inflation would cost employers around £3bn in 2018-19. Credit: Nick Ansell/PA

The Senior Civil Service is among the public sector organisations most likely to face recruitment and retention problems for London-based, highly educated staff if limits on public sector pay continue, the government has been warned.

The Institute for Fiscal Studies has reported that in 2016-17 the difference between public and private sector pay returned to pre-crisis levels, with public sector pay particularly low relative to the private sector for highly skilled workers, and those working in London and the south east.

In a report setting out the case for easing pay restraint for highly skilled public sector workers such as senior civil servants and teachers, the IFS predicts that persisting with the 1% pay cap until 2020 would push pay relative to the private sector to historically low levels.


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The gap in pay levels between the sectors widened after the recession, with public sector pay higher after a sharp drop in private sector earnings from 2007.

But now, after seven years of public pay restraint introduced by the 2010 coalition government – and after controlling for differences in workers’ characteristics such as education and experience (public employees are more likely to be better educated) – there is little difference between average pay in the two sectors, the report finds.

Analysing figures on hourly pay from the Labour Force Survey, IFS report author and senior research economist Jonathan Cribb found that graduates working in the public sector earned just 2.3% more than those in the private sector in 2016-17. This is down from a 5.9% gap in 2011-12 and 2.9% in 2007-8.

If this trend continues, Cribb predicts, it will become progressively harder to recruit senior civil servants and other highly educated public professionals.

“If [government] decides to maintain the 1% cap, we should expect increasing difficulties in recruiting, retaining and motivating high quality public sector staff, reducing the quality and quantity of public services,” he said.

The report stated that some pay review bodies have already reported recruitment issues, and concluded that increasing public sector pay in line with prices or private sector earnings would likely mitigate some of the emerging problems.

It also says there is “a more pressing need for pay increases” for public sector staff in London and the south east – the only UK regions where average private sector pay is higher than public pay.

The IFS said it now expects to see greater recruitment and retention issues in London and the south east, which is where most central government organisations are based.

The institute also warned of the price tag of pay rises, pointing out that – compared with retaining the cap – an increase to public sector pay in line with inflation would cost employers around £3bn in 2018-19 and £6bn the year after.

The government has so far only announced details of pay cap lifts for prison and police officers, both to be funded from existing budgets. But, as the report explained, a pay increase for the civil service would cost significantly more than one for the police because of the relative sizes of the workforces.

Cribb said that increasing pay for public sector workers implies substantial extra costs to public sector employers.

“The Treasury could provide extra funds for this by raising taxes, cutting other spending or borrowing more. Asking the NHS, for example, to fund higher pay increases from within existing budgets would be very challenging.”

Public administration employers, including the civil service, would need to see their funding increased by about 0.7% in 2018-19 and 1.1% in 2019-20 if they were to award pay increases in line with inflation without making spending cuts, according to the report.

About the author

Tamsin Rutter is senior reporter for Civil Service World and tweets as @TamsinRutter

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Comments

John Shields (not verified)

Submitted on 20 September, 2017 - 14:19
I think the government has to lift the cap for all public servants and not cherry pick the ones that cost the least. Austerity has gone on for far too long there has been a reduction in staff numbers across all the services and HMRC is closing the Tax gap and non Compliance and this is in the billions. Regardless of grade we all deserve a pay rise and this is the way this issue should be addressed. There are people, families and children behind the numbers and we should never lose sight of this. MP's need to also remember they are there to serve the public and they had no trouble in finding a 10% rise for themselves regardless of the pay restraint on everyone else.

Kipper 352 (not verified)

Submitted on 20 September, 2017 - 15:23
If there is an issue with recruitment and retention in London and the South East, then this only strengthens the argument for Government to move out of these areas rather than continue to throw money at the problem. It is unrealistic to suggest that the skill levels are significantly lower outside of the capital, so moving work away and filling vacancies (with skilled staff) in other parts of the country should be an option open to Central Government. They don't have the foresight to do this though.

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