Public sector’s turn to face recession

Allister Heath
IT hasn’t been fun being in the private sector in recent years. It bore all of the cost of the recession, with more than 100 per cent of the contraction in GDP falling on private firms – the public sector, meanwhile, continued to expand. Wage growth has been weak to non-existent for most private workers over the past couple of years, there has been a sharp drop in employment and hardly any firms can afford to offer pensions any longer.

The gulf with the public sector has become striking: the median salary in the public sector is now 12 per cent higher, or 30 per cent higher on an hourly basis, a gap that astonishingly is still growing – and that is even before other benefits are accounted for. Private employees work 23 per cent more hours (9.2 years of a public sector employee’s working life) over their lifetime, thanks to shorter hours, more time off and earlier retirement in the public sector.

As an report from Policy Exchange reveals, between 1997 and 2008 the proportion of public sector workers without pension provision from their employers fell to 16 per cent. In the private sector this rose to 63 per cent. Almost 80 per cent of public sector workers are in defined-benefit scheme, against just 8 per cent in the private sector. Such pensions are worth an extra 12-15.6 per cent of total salary, depending on estimates.

Job security is another benefit: during the recession, workers in manufacturing were 16 times more likely to lose their jobs than public sector staff. In a survey of 60 different public sector organisations by the Cabinet Office, just 13 per cent of employees disagreed with the statement that their organisation “is too lenient with people who perform poorly here.” Less than 1 per cent of civil servants take voluntary redundancy each year, and just 0.00007 per cent a year have suffered a compulsory redundancy.

Many low-paid workers – such as cleaners – have been contracted out of the public sector but this does not in fact explain the wage differential. The gulf remains for equivalent job categories (such as state sector managers, whose numbers are up 80 per cent since 2002) and holding other factors constant. The nationalised banks don’t explain the gulf either.

It is clear that the public sector needs to shoulder more of the burden; the deficit may be slightly lower than expected but it remains cripplingly high at around £150bn. I don’t say this with any joy, especially given the importance of the work performed by nurses, doctors, teachers, the police and other frontline workers. But the pain must now be spread in a fairer and more sensible way.

Labour set in train a real terms cut in public sector wages by capping pension contributions and promising to limit pay increases to 1 per cent. Ireland is implementing a 10 per cent reduction in pay, three quarters of which takes the form of increased pension contributions – the so-called public sector levy. Portugal has also targeted the pension bill, along with a 5 per cent wage cut. In France the public sector is not replacing half of retirees. The Netherlands have introduced a one year wage freeze, Greece a four year freeze. Spain is pursuing 4 per cent cut in the total pay bill. It has also introduced a “ten out, one in” rule. Regardless of which method George Osborne ends up adopting, one thing is unfortunately clear: the public sector is entering a recession that will be as painful as that which the private sector has been forced to endure.