Public sector pay has started falling sooner than forecast - and it's going to keep falling

Courtney Goldsmith
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General Election - National Health Service
Growth has been particularly weak in health and social work (Source: Getty)

Average real pay is falling in the public sector, and it's expected to drop further over the next three years, new research shows.

The Resolution Foundation's latest earning outlook, which will be published today, forecasts average real pay in the public sector will fall below 2004-2005 levels by the end of the parliament (2019-2020).

Forecasts released by the Office for Budget Responsibility (OBR) last week showed overall pay growth could turn briefly negative later this year, but new analysis from the Foundation shows the decline has already begun in the public sector.

On current pay trends, average pay in the public sector will be £1,700 lower in 2019-2020 than its peak in 2009-2010. However, the very lowest earners will be protected by large and increases in the National Living Wage.

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Pay in the public sector, which employs one in six workers has been hit by a combination of rising inflation and pay restraint, which has limited paybill growth to one per cent for the next three years. Pay is likely to have started falling in the three months to February as inflation has increased.

Private sector pay has continued to grow over the period.

Adam Corlett, economic analyst at the Foundation, said:

Although public sector pay restraint is important to the government’s deficit reduction plans, falling real pay is likely to see increasing recruitment strains. The government should be planning now how to manage those strains, alongside any wider changes to policies like migration that will also have an impact.

(Source: Resolution Foundation)

Growth has been particularly weak in health and social work, and it could fall a six per cent more in the sector by the end of parliament.

"This could make it hard to recruit new workers and provide sufficient care for an ageing population, despite the government’s welcome announcement of a £2bn funding boost in last week’s Budget," the Foundation said.

Read more: UK government deficit rises with debt at £1.66 trillion

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