DEBATE: Regardless of what Philip Hammond may or may not have said, are public sector workers overpaid?
The public sector pay cap is a blunt instrument; it is set centrally in Whitehall and has different effects across the country. Public sector employees in London and the south east are therefore sometimes paid too little, while those in other parts of the country are sometimes paid too much relative to the living costs in their region. If we decentralised pay, hospitals and schools could themselves boost the salaries of exceptional staff. At the same time, public sector pensions are much more generous than those in the private sector, and no party has any plans for how to pay for them. When these pensions are accounted for, public sector employees are on average paid 10 per cent more than private sector workers. We calculated these unfunded public sector pension liabilities. They leave tomorrow’s taxpayers on the hook for an extra £1.8 trillion above the stated national debt. So if we want to give our public sector employees a pay rise, one option would be to sacrifice some pension employer entitlements in exchange for higher salaries today.
Real-terms earnings for almost all state workers are radically down since 2005. Inflation is ticking up. And frontline pressures, from classroom to care home, are growing. So yes, we can all pick out the straw men, the BBC “talent” or NHS executives. But if this debate is about frontline staff – teachers, bobbies, nurses – then Britain deserves a pay rise. Not that it would be cheap – wages represent half Britain’s day to day state expenditure. The cold fiscal logic that pay rises can only be funded by taxes, cuts, or borrowing cannot be escaped. Still, a more productive state could save us money in the long run. And after seven years of demoralising restraint, perhaps it is time to put down the stick and test the logic of the carrot. But we should also redistribute within the public sector too. After all, Britain is well below the OECD average for public pay at junior levels, and well above it at senior ones.