The biggest pay cut is for higher-paid roles in the public sector

According to the Institute for Fiscal Studies, the fall in real pay in the last 15 years has affected recruitment and retention of higher-paid jobs in the public sector.

Pressures on Public Sector Pay by IFS found that senior positions had seen their salaries fall dramatically compared to lower-paid colleagues.

The average hourly wage of a doctor has fallen from 95th percentile in 2007 to 90th percentile. Over the same time period, the average teacher’s pay fell from the 87th to the 81st per centile.

The relative position of lower-paid workers in the earnings distribution has not declined to the same degree. Junior police officers are the only exception, as their pay dropped from the 34th to 26th percentiles in 2014.

According to the think tank, while pay increases in the public sector are often headline news, less attention is paid to pay structure.

It is important to get this right for public finances as well as for public service delivery. In many areas of the public sector both the structure and level of remuneration do not meet the needs of the job, the report stated.

The study found that, by 2028-29 the cost of increasing public sector pay to match the forecasted annual earnings growth would be around PS6 billion per year. Closing the earnings gap between the public and private sectors workers would cost PS17 million.

The Chancellor Rachel Reeves has confirmed that the public sector will be receiving a pay award between 5.5 and 6% next year. This follows recommendations by independent pay review bodies.

Magdalena Dominguez, co-author and IFS researcher and economist of the report, said that recruitment and retention continue to be “common concern” for many government services.

The teacher vacancy rates are now twice as high as they were before the pandemic. She said that the leaving rate for prison staff in 2023 was 13%, and that there were many changes in senior civil service.

In the NHS, international recruitment is becoming more important to filling posts. This means that the public sector will have to reform its pay and for some even increase it in coming years.

The think tank argued that pensions in the public sector are often more generous and expensive for the public purse. It also argued that there was a case to be made to shift remuneration from pensions to pay.

Andrew McKendrick is a research economist and coauthor. He added that “public sector pensions are still far more valuable than private sector pensions, but many lower-paid employees miss out because they can’t afford to pay the required employee contribution.”

The pay gap between the two sectors is often larger, and recruitment issues are worse for groups that earn more, such as senior civil servants and judges.

The government needs to restructure remuneration in order to ensure that it gets the right people into the right roles for helping deliver public services. This could mean a careful rebalancing of pensions, and moving towards more lucrative professions.

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