Dave Penman: All in it together? Not if you're a public servant

George Osborne says Britain deserves a pay rise. Unless you work in the public sector, of course

By Dave Penman

13 Jul 2015

Every year at both Budget and Autumn Statement time, my office, which has the only television in our HQ, fills up. As a result, two of the people I watched this year’s Budget with were tax inspectors. They chuntered to every announcement on taxing of dividends etc with various grunts of approval or shakes of the head – but it wouldn’t do much for my readership figures if I recounted blow-by-blow their views on taxation policy.

There are two aspects of the Budget, though, which directly affect my revenue-raising colleagues that I want to highlight.

I am sure it will come as no surprise that I take issue with the chancellor’s announcement of another four years of pay restraint, with increases held at 1%. He clearly feels it’s a winning formula: hold back public sector pay, run the old chestnut that it’s a choice between jobs and pay and, bingo jingo, there’s around £5bn in savings with little or no consequence, or so he believes. Indeed, he is so blasé about this announcement that he couldn’t see the irony of finishing his speech with the term “Britain needs a pay rise and Britain is getting a pay rise” when it came to his announcement on a living wage. A gift for the FDA’s press release, but a slap in the face to millions of public servants (and those tax inspectors).

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By the time of the next election, public servants will have experienced a decade – an entire decade – of either no pay rises or pay held back at a maximum of 1%. Taken together with increases in pension contributions, many civil servants are already taking home less actual cash than they did five years ago, never mind the real value of pay, which has fallen by about a quarter over the same period.

In its Budget report, the government states that it hopes inflation will return to the target rate of around 2% soon. So, as a matter of policy, it wants to cut the living standards of its public servants year on year. As it slaps itself on the back for steering the economy to growth, it locks out millions of public sector workers from the benefits of the recovery.
That same Budget report predicts that average earnings will continue to rise over the next parliament at around 4% for most of the period. So while the rest of Britain will feel the benefit, public servants certainly won’t. 

Not only do I believe that the government has a moral obligation to ensure its public servants benefit from the recovery in the same way it has ensured it shared the pain of the recession, I also think this unfair treatment of the public sector is counterproductive.

Back to those tax inspectors. The chancellor announced that he will reinvest £0.75m in HMRC to further tackle tax evasion and avoidance, hoping to recoup that many times over in yield. We have long argued this case: HMRC has ably demonstrated that it is a wise investment and we welcomed the announcement in the Budget statement.

Our tax professionals routinely deliver millions of pounds in tax revenue, outwitting complex avoidance schemes dreamt up by accountants and lawyers earning many times what they do. The best tax minds are in the public sector: that’s why they are routinely offered eye-watering salaries to jump ship. The government’s own evidence demonstrates that, for comparable jobs to the civil service, the private sector delivers a total remuneration package which is 50% more at Grade 6&7 level. The proportions continue to rise with every grade from around SEO equivalent and, at the most senior levels of the SCS, are around double what the civil service pays. Remember, this is the government’s own data that it asks the Hay Group to collate, which includes the value of pensions.

Therefore, it’s no wonder that departments such as HMRC are having to resort to offering higher starting pay or Labour Market Supplements to recruit appropriately experienced staff. In areas such as the Ministry of Defence, organisations have been created with the specific purpose of being excluded from civil service pay policy. 

The Institute for Fiscal Studies estimates that a further four years of pay restraint “will take public sector pay levels well below their long-term average relative to pay in the private sector, and indeed well below anything seen since we can readily make comparisons back to the early 1990s”. Yet the government seems oblivious to the impact this will have over the longer term.  

My tax inspector colleagues chose to work in the public sector. They are passionate about the vital role they perform for our country in a way that is truly inspiring. They do interesting, valuable work – but what are they to make of how they are being treated by their employer? What are they to make of a decade of pay restraint, of watching the rest of Britain benefit from recovery, of seeing new recruits being paid more than existing staff and feeling undervalued? 

In the summer Budget the chancellor once again used his favourite phrase, “we’re all in it together”. Not, it would seem, when it comes to reaping the benefits of recovery.


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