Labour plan to end public sector pay cap would lead to 5% wage boost, claims IFS

Analysis warns that continuation of 1% limit on pay increases will exacerbate public sector recruitment problems


By Richard Johnstone

22 May 2017

Civil service pay could be as much as 5% higher by 2021-22 under a Labour government compared to the Conservatives, according to an analysis from the Institute for Fiscal Studies.

The think-tank examined the pay policies of the parties, as well as the Liberal Democrats, ahead of June’s general election.

The Conservative government policy is to continue to limit public sector pay increases to 1% each year up to and including 2019-20, while the Liberal Democrats have pledged to increase pay in line with the Consumer Prices Index measure of inflation.

Labour pledged to place pay decisions in the hands of the eight independent pay review bodies which exist to set pay across the public sector. These include the Senior Salaries Review Body for senior civil servants, but there is no review body for the civil service as a whole, where pay policy is set out by the Treasury.


Conservatives urged to join ‘consensus’ to end public sector pay cap
Public sector pay cap set to ‘slowly unwind’, says top analyst
Treasury guidance sets out details of civil service pay cap ‘flexibility’

However, Jonathan Cribb, a senior research economist at the IFS told Civil Service World average pay would be 5% higher in 2021-22 under Labour than under the Conservatives under these plans.

He estimated that between 2016-17 and 2021-22, under current government plans, public sector pay will increase by 11% (not accounting for inflation). Under the Labour plans it will increase by 16%, also not accounting for inflation).

Therefore, under Labour plans, public sector pay would by 5% higher in 2021 than under the Conservative plans.

“Recruitment and retention problems are beginning to emerge in the public sector following successive years of public pay restraint,” he said.

“The Conservatives’ plan of 1% increases for the next two years risks exacerbating recruitment problems – and ultimately reducing the quality of public services – as public pay growth would fall markedly behind growth in private sector pay.

“Labour’s plans to return to the recommendations of Pay Review Bodies would boost public sector pay but require significant extra resources (around £9bn per year in 2021-22) for government departments to pay for the higher wage costs, unless departments make cuts elsewhere. The Liberal Democrats’ plans imply public pay increases larger than the under the Conservatives and smaller than under Labour.”

Increasing public sector pay would boost the earnings of the 5.1m public sector workers, 1.6m (31%) of whom work for the NHS, and 1.5m (30%) of whom work in education, as well as the civil service.

Under Labour’s plans, the government would need to provide departments and local government with an additional £9.2bn a year to pay for the higher costs of employing public sector workers, while the Liberal Democrats’ plans would necessitate an extra £5.3bn a year. 

The additional cost is higher than the £4bn budgeted for the end of the cap in Labour’s spending plans because the IFS calculation is based on the cost to public sector employers, not the effect of the policy on the public finances, Cribb told CSW.

Read the most recent articles written by Richard Johnstone - Building the future: Steven Boyd on making government property work for the civil service


Share this page