Public sector pay cap set to ‘slowly unwind’, says top analyst

Ken Mulkearn says that 1% limit on increases under pressure due to service pressures

HM Treasury Credit: PA

By Richard Johnstone

12 May 2017

A leading pay-policy expert has predicted the “beginning of the end” for the government’s policy to limit civil service wage increases to 1% a year, due to both the pressures the constraints have placed on public services and the likely increase in the inflation rate.

Ken Mulkearn, a director at Incomes Data Research who has analysed public sector pay trends for more than 20 years, told the FDA union’s annual delegate conference that pay settlements across both the public and private sector were running at low levels.

He predicted the cap, which has been in place since 2012 and followed a two-year freeze, would be “slowly unwinding in its current form” due to both the pressures the constraints have placed on public services and the likely increase in the inflation rate.


Two pay deals breaching the 1% pay cap have been agreed in the last year, covering surveyors and specialist staff at the Maritime and Coastguard Agency, and at the Department for Work and Pensions.

Mulkearn predicted “we might be beginning to see the slow unravelling of the current pay policy” due to the impact that the scheme had had on public service staffing, which he said was increasingly raised as a concern by public sector pay review bodies that make recommendations to government on pay rates in some sectors.

“The NHS pay review body’s latest report for 2017 said that the evidence they received gives them cause for concern about the sustainability of public sector pay policy over the next few years,” he said. “That is because of the evidence on recruitment, retention and poor morale that is beginning to filter through to the review body."

The pay review body for teachers has also made the case for an uplift of more than 1% to address recruitment and retention problems.

This highlighted, Mulkearn said, that “in many areas of the public sector, evidence is beginning to come through of the impact of pay policy on the recruitment, retention and motivation of staff”.

As a result, the people responsible for submitting pay advice “are beginning to draw the opposite conclusion to the government”, he said.

A likely increase in inflation in the next 12-18 months would also place the scheme under renewed pressure, Mulkearn said. 

“The policy is unprecedented both in terms of its longevity and also in its severity and I think we are beginning to see the negative effects of it on staffing in public services," he said.

“We have been here before, in the 1990s, when we had the same tenor of issues began to emerge and then the remedy was an ending of restraint and a very different approach, and that is one of the options probably being considered.”

Also speaking at the conference session on pay, FDA general secretary Dave Penman said the pay cap had “broken” the idea that government gives its employees a pay rise to some degree to match the cost of living.

There had not been a period of comparable pay policy at any other time in his career, going back to the 1980s, Penman said.

“I have seen occasions when governments – the Thatcher government being what people think of as the most extreme version of it – restricted pay for one or two years, but there was a general acceptance that there would be pay rises," he said.

"There was that sense that you always had, even when we were negotiating with a Conservative government, of an acceptance of some form of annual negotiations for pay rises to reflect the cost of living. And the last seven years has really broken that as any sense of public policy, that that is what the government does for its employees.

“I think that the pay austerity we have seen has changed entirely the dynamic around public sector pay.”


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