Public sector pay premium ‘narrows’


Published: Friday 10th October 2014 by The News Editor

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The pay premium enjoyed by public sector workers has narrowed as a result of the Government’s austerity squeeze but their wages are still ahead of those in the private sector, according to two new reports by a think-tank.

They earn on average 4% more, down from 5% in 2012, with the gap expected to narrow to 2% by the start of next year – the same as pre-recession levels in 2007 – the Institute for Fiscal Studies (IFS) found.

It said that since 2010, public sector pay had been held back so that the difference opened up during the crisis had been closed.

But the gap is larger when taking into account generous pension arrangements in the public sector, despite reforms by both Labour and the coalition.

Take-home pay in these jobs was 8% higher for women than in the private sector though for men there was no significant difference, the IFS said.

Those with low wages and low levels of qualifications were better off in the public sector, with the difference widening in 2011 and 2012 as they were partially protected from squeezes on pay, the IFS found.

But better qualified high earners tended to earn more in the private sector.

It found evidence that this had implications for the ability of the public sector to attract workers with the necessary qualities.

The study also said that while public sector jobs were better paid in Wales, Northern Ireland and the South West, in London and the South East the gap was close to zero or in some cases private sector pay was higher.

In a second report, the IFS acknowledged the effect of reforms on public sector pensions.

It said the value of employer contributions to these would have risen from almost 25% of salary in 1997 to almost 35% in 2011, were it not for the changes – due to factors such as increased life expectancy.

The reforms, which included linking pensions to the Consumer Prices Index (CPI) level of inflation instead of the Retail Prices Index (RPI) – which is higher – helped the actual figure fall to 19% in 2011.

But while most public sector workers are members of more generous defined benefit schemes, the proportion of public sector workers in such schemes has fallen from 38% in 1997 to just 12% in 2012.

It means that in that year, while the public sector pay premium based on wages was 5%, it was 17% when including pensions.

IFS research economist Jonathan Cribb said: “There is substantial variation in the estimated differential between public and private sector pay for different types of workers and across different parts of the country.

“This might suggest differentiating pay awards going forward. But the uncomfortable truth is that it is lower paid workers, women and those in poorer regions who do best in the public sector relative to the private sector.

“The biggest difference between public and private sectors remains the value of employer contributions to public service pensions.

“These are on average much more generous in the public sector than in the private sector.

“Over the last 15 years, changes in the gap between total remuneration in the public and private sectors has been driven more by the changing value of pensions rather than headline pay. Pay and pensions need to be considered together.”

TUC general secretary Frances O’Grady said: “The IFS shows just how deep and long the pay squeeze has been for vital public sector staff.

“Already the NHS is having difficulty recruiting and retaining staff, and morale has hit rock bottom following the government’s rejection of its own Pay Review Body’s recommendation.

“What is worse is that the pay squeeze looks set to go on and on, which will not only make public-sector workers suffer further years of cuts in their living standards, but also hit the quality of the services that bind our society together.

“Public-sector workers going on strike next week do not understand why they are not being allowed to share in the benefits of the recovery, when there is cash available for tax cuts for the rich.”

The Treasury said: “Pay restraint since 2010 will have saved the taxpayer an estimated £12 billion by 2014-15, helping protect crucial frontline public-sector services and jobs.

“The Government’s reforms to public service pensions are predicted to save £430 billion over the next 50 years and will be fair to taxpayers, employers and employees.”

Published: Friday 10th October 2014 by The News Editor

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