UK public sector wages lag private sector as cost of living crisis bites

Wage deals for UK public sector workers are falling behind those on offer in the private sector, exacerbating already acute staffing pressures in schools, hospitals and local authority services.

Data from the research group XpertHR, published on Wednesday, shows the median public sector pay award was just 1.4 per cent in the year to March 2022, well behind the private sector median of 2.2 per cent for the same period.

The difference is increasing. Official data show annual growth in total average earnings reached a 15-year high of 6.2 per cent in the private sector in the first three months of 2022 — while falling to a five-year low of 1.9 per cent in the public sector.

This gap is likely to persist. While pay is now falling in real terms for almost all workers, with inflation at a 30-year high of 7 per cent, employers competing for staff in a tight labour market are trying to make competitive offers. The median pay award rose to 4 per cent in April, the month in which almost half of settlements take effect, according to XpertHR — whose pay and benefits editor, Sheila Attwood, described it as a “notable upturn” that would “bring some comfort for the future”.

Chancellor Rishi Sunak, however, has given government departments little room to make pay offers more generous in the face of rising inflation, using the leeway afforded him by improving public finances to fund tax cuts and help with energy bills, rather than to increase spending on public services.

With industrial action under way or threatened by refuse collectors and railway workers, criminal barristers and civil servants, there is mounting evidence that chronic staffing pressures in many sectors reliant on public funding, which eased during the pandemic as job security took precedence over pay, are now re-emerging.

“You can drive down pay for so long . . . once you get to that point, you inevitably build up recruitment and retention problems,” said Graham Atkins, a researcher at the Institute for Government think-tank, noting that vacancies had already returned to pre-pandemic levels in many areas of public services, while an earlier flood of applications for teacher training had dried up.

In the care sector, “the crisis has already happened”, he added.

Meanwhile, the annual NHS staff survey reveals rising discontent among its workforce of 1.3mn, with a marked drop in the proportion who are satisfied with their pay, would recommend their workplace to others, or feel valued and able to exercise autonomy at work.

Bar chart of Staff who.... (%) showing There is rising discontent among NHS staff

But while the pay freezes imposed on many public sector workers last year are now lifting, Treasury guidance to the pay review bodies that will soon set out recommendations for 2mn public sector workers is that pay growth should retain “broad parity” with the private sector, but should also be both affordable and compatible with the 2 per cent inflation target.

The Department of Health and Social Care has said this implies a headline pay award of at most 3 per cent for NHS workers. The Department for Education has set out proposals that are generous to teachers early in their careers but imply big real terms pay cuts for experienced staff.

Although public sector workers still earn more on average than their private sector counterparts, a decade of pay restraint has already eroded their lead, making the gap smaller than at any point in the past 30 years, noted Ben Zaranko, at the Institute for Fiscal Studies .

Unions say staff worn out by the strains of the pandemic are increasingly switching to less stressful, better rewarded roles in the private sector.

Mike Short, head of local government and education at Unison, the public sector union, said last year’s pay settlement of 1.75 per cent for local authority workers had left councils struggling to retain drivers for refuse collection and road gritting, as well as higher paid white collar staff.

According to Short, rapid increases in the statutory minimum wage have made it harder for public sector employers to pay a premium to attract so-called key workers. “If the best you can offer for those really challenging jobs is the national minimum wage, people will leave,” he said.

Unison has seen rising numbers of hospital porters, cleaners, catering staff and care workers moving to jobs in retail, logistics and hospitality; while paramedics shift to work at sports events and on film sets; and nurses find better paid, less pressured jobs with private providers.

This dynamic has led some departments to make pay rises more generous for those in lower paid roles, new recruits and those in their early careers.

This is especially pronounced in education, albeit for slightly different reasons, where the government has pledged to raise teachers’ starting salaries to £30,000, to attract new graduates and career changers, and stem the outflow of new teachers who leave within a few years of qualifying.

However, this implies a flatter pay scale and a continued pay squeeze for more experienced and highly qualified staff — which unions say is starting to affect their retention, and to deter middle ranking staff from seeking promotion to leadership roles carrying more career risk and responsibility.

The school leaders’ union, NAHT, has obtained government figures showing that even before the pandemic, a quarter of primary school leaders and more than a third of secondary school heads were leaving within five years of appointment.

Ian Hartwright, NAHT’s senior policy adviser, said the union was now seeing a surge of inquiries about early retirement from heads and deputy heads who had felt “duty bound” to see their schools through the pandemic but were in a state of “exhaustion”.

Pay is not the only issue affecting public sector workers, but it compounds other concerns around stress, increasing workloads — and in the case of civil servants, the new ministerial drive to recall staff to the office.

Alex Thomas, a programme director at the IFG, said officials with the digital and data expertise targeted by civil service reform plans were “precisely those most likely to exit based on pay” and who “would expect terms and conditions to be more flexible”.

He added: “I worry about the loss of . . . exactly the skills we most want to retain.”

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