Public sector workers set for wage freeze already face pay penalty, new report claims

Those in local government and education already face a 7.9 per cent pay penalty, on top of 2021’s freeze, compared to private sector workers in similar roles

Last month Rishi Sunak announced that 1.3 million public sector workers would have their pay frozen (Getty Images)

Teachers, police officers and armed forces workers affected by the government’s 2021 paty freeze next year already face an earnings penalty compared to private sector staff in similar roles, a new report claims.

Last month the chancellor, Rishi Sunak, announced that 1.3 million public sector workers would have their pay frozen.

Frontline NHS staff and lower paid workers will get pay rises, Mr Sunak said in his annual Spending Review.

But he said rises for others in the public sector were being “paused”.

This includes civil servants, teachers, police, firefighters, the armed forces, and council staff.

The Earnings Outlook report, that was released today by think tank The Resolution Foundation examines the pay of the 2.6 million public sector workers subject to the coming one-year pay freeze, along with the 2.9 million who are exempt.

It states that public sector workers affected by the pay freeze next year already face a pay penalty compared to private sector workers in similar roles, while those exempt from the freeze enjoy a pay premium, according to the report.

The report notes that the public sector pay freeze has been justified on account of the need to reduce the pay premium the sector enjoys over private sector workers.

Public sector workers have traditionally still enjoyed a pay premium over private sector workers with similar characteristics doing similar jobs.

A decade of pay restraint since 2010 had brought this pay premium down to zero by 2019, but the pandemic has changed the relationship between public and private sector pay yet again, it states.

The Earnings Outlook notes that the crisis has caused widespread turmoil in the private sector – with unemployment rising, 2.4 million workers furloughed in late October, and the proportion of workers subject to pay freezes quadrupling (from 5 to 20 per cent).

However, the public sector pay freeze’s design means it is inaccurate to see it as addressing public sector pay premiums that may have emerged.

The report finds that public sector workers affected by the pay freeze coming into effect next year – such as those in local government and education – actually already face a 7.9 per cent pay penalty compared to private sector workers in similar roles.

In contrast, public sector workers exempt from the freeze – such as NHS workers and those earning less than £24,000 – already enjoy a 6.7 per cent pay premium over their private sector counterparts.

The Earnings Outlook notes however that while the public sector pay premium is a poor justification for the coming pay freeze, other factors will have played a bigger role in the chancellor’s decision.

According to the report workers affected by the freeze live in relatively high-income households – with their typical income of £36,300 well above that of private sector workers (£28,700) and public sector workers not affected by the freeze (£28,200).

It also states that with the chancellor announcing a £10bn-a-year cut in public service spending from next year and public sector pay accounting for a fifth of total departmental spending, the need to find these savings may have been more relevant than “questions of fairness between public and private sectors”.

Hannah Slaughter, economist at the Resolution Foundation, said: “Public sector workers have traditionally enjoyed a pay premium over private sector workers, though a decade of pay freezes and caps after the financial crisis had reduced that premium to zero overall.

“We have now entered a fresh phase of pay turmoil – with millions of private sector workers facing job losses, furlough-induced pay cuts or pay freezes.

“The government has justified the coming public sector pay freeze on the basis of the pay premium these workers will experience as a result of the pandemic.

“But this is a very poor description of the impact of the policy – with the freeze largely falling on those already experiencing pay penalties relative to the private sector.

“Going forward, ministers must be mindful that while public and private sector pay do move in line with each other over the longer term, there are risks in making that adjustment next April when the economic challenges of the pandemic will still be immense, and consumer confidence needs supporting.”