IFS: Civil service pay has been ‘held down unbelievably’

Paul Johnson says pay for officials is just one example of why public service cuts will be so difficult to achieve for next government
Civil service pay strikes in 2023. Photo: Richard Baker/Alamy

By Tevye Markson

25 Jun 2024

Civil service pay “has been held down unbelievably over a long period of time”, Institute for Fiscal Studies director Paul Johnson has said, as he warned that the next government would find public service cuts more difficult to achieve than raising taxes or debt.

Johnson used civil service pay as one example of the wide-ranging pressures on public services that makes spending cuts, in his opinion, an unrealistic option for the next government.

Speaking at a press briefing, Johnson said whichever party takes office following the general election will, “unless they get lucky…soon face a stark choice: raise taxes by more than they've told us in their manifesto, or implement cuts to some areas of spending, or break their fiscal rules and allow debt to rise for longer”.

Asked which was most likely to be chosen by the next government, Johnson said: “I wish I could confidently answer that question. But I think the sense of particularly a Labour government coming in, facing the situation that we've got at the moment, if growth doesn't push up, then the pressure to either move the fiscal rule or to find more money for tax, I think, will be really quite significant.”

He added: “There are so many pressures on spending…I think it's very hard to see spending as the thing that gives here, given the scale of pressures that there are.”

Johnson picked out public sector pay as an example. 

“Teachers pay hasn't risen in 25 years, whereas average pay has risen by something like 18%. We know that the doctors are continuing to push for higher pay. We know the pay of the civil service. Any civil servants watching will be pleased I say this. Pay of the civil service has been held down unbelievably over a long period of time," he said. 

Civil service pay is estimated to have fallen by between 12% and 26%, depending on grade, since 2010. PCS, the civil service's biggest union is calling for a 10% pay rise and pay restoration for civil servants to address this. 

Earlier this week, Bee Boileau, a research economist at the IFS, told the Financial Times that the next government would need to find an extra £7bn for public sector pay deals to keep up with private sector counterparts.

Summing up the parties’ manifestos, IFS associate director Christine Farquharson said they had set out “really big, meaningful, crunchy ambitions in a lot of different areas” but with “little sense” of where the resources will come from.

The IFS has previously warned that the current plans outlined in the Spring Budget would mean cuts of £10-20bn to unprotected departments affecting areas already in crisis such as overcrowded prisons, courts with huge backlogs and struggling local authorities. The think tank has said the plans outlined in the Labour and Conservative manifestos would necessitate similar service reductions, albeit less weighty under Labour. 

In response to the IFS analysis, Rishi Sunak, prime minister and leader of the Conservative Party, said: "We have a fully costed manifesto which can deliver tax cuts for people at every stage in their lives. That is largely funded by making sure that we can find some savings in the growth of the welfare budget because it has been growing at unsustainable levels since the pandemic."

Labour leader Sir Keir Starmer said: "The economy has flatlined for 14 years and that is exactly what we are wanting to change and that's why we have set out plans for growth in our manifesto."

Why is the next government facing a "trilemma"?

Johnson described the choice facing the next government as a "trilemma": raise taxes, cut public services, or allowing debt to rise – and therefore break fiscal rule pledges made by both main parties. 

Explaining why the next administration will be in this predicament, he said: "How can we be in this world of high tax, high spending, but failing public services? Well, the answer is, in large part, a £50bn increase in debt interest spending relative to forecasts, and a pretty big growth in the welfare budget over the last few years. We've also got rising health spending and a defence budget which for the first time in decades is going to grow, not shrink, and the reality of demographic change, and of course the need to transition to net zero. Add in low growth and the after-effects of the pandemic and the energy price crisis and you've got a pretty toxic mix in public finances."

 

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