Evidence shows public sector pay is still higher

Julian Harris
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Hammond hit the headlines for his comments regarding public sector pay
Hammond hit the headlines for his comments regarding public sector pay (Source: Getty)

When a politician’s comments trigger any kind of public outrage or controversy, they tend to backtrack at lightning speed before grovelling for forgiveness – even when they were in the right all along.

Thus it was refreshing to hear the chancellor calmly elucidate on the topic of public sector pay yesterday, when confronted by headlines claiming he said state employees were “overpaid”.

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“Public and private sector pay on average are around about the same level,” Philip Hammond told the BBC. “But when you take into account the very generous contributions that public sector employers have to pay in for their workers’ pensions, their very generous pensions, they are still about 10 per cent ahead.”

Comparing private sector and public sector pay is notoriously difficult, given the huge variations in the jobs involved.

However, we have some pretty good recent evidence such as an Institute for Fiscal Studies report from just two months ago.

It cites figures that are adjusted for the fact “the public sector is mainly staffed by highly educated professionals”.

The data, “adjusting for observed differences in a set of workers’ characteristics”, shows that public sector workers were paid around three per cent more than their commercial sector equivalents when the great recession struck in 2008. This figure climbed to over six per cent by 2011, but has now dropped back to around three per cent as government austerity measures bite.

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So public sectors workers are still paid more, and by the same margin as they were under Gordon Brown. Furthermore, these numbers, unlike the ones cited by Hammond, “do not include non-pay remuneration, such as pensions, which are still much more generous on average in the public sector than the private sector”.

A separate report undertaken by UCL for the government and published last month, found “a decline of 5.8 per cent in median real gross hourly occupational earnings between 2005 and 2015”. But even then, the fall in earnings among public sector roles overseen by a Pay Review Body was 3.1 per cent, compared to a much sharper 6.1 per cent drop in other jobs such as equivalent roles in the private sector.

The post-recession pay squeeze is real, especially for workers at the lower end of the scale. It has hit workers in the commercial sector, state sector, and voluntary sector. But as Hammond argues, the only way to solve this is for the UK to boost its productivity, maintain fiscal discipline, and try to achieve a much faster level of growth.

Read more: The Tories have one way out of the public sector pay dilemma

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