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Public sector pay still rising faster than in the private sector, says Policy Exchange

New research from Policy Exchange says that the gap between public sector and private sector pay is still rising. While private sector workers lost out during the recession, public sector workers saw their advantage grow.

The report says: “Despite the coalition’s attempt at pay restraint, public sector salaries continued to rise as late as December 2010. That was despite pay for many workers in the private sector actually falling even before inflation is included – meaning that many private sector workers will have seen drastic cuts in their standard of living.”

This study says that the public sector “premium” – the additional pay a typical public sector worker receives over a private sector worker – is now up to 35% calculated on hourly pay. For typical annual pay the premium is up to 16%. After taking into account differences like age, experience and qualifications, Policy Exchange puts the hourly pay premium for a public sector worker at 8.8% as of December 2010. This has almost doubled from 4.3% two years earlier.

The new research updates previous work from Policy Exchange which said that 2009 was the "first year in which average pay for public sector workers as a whole was now on average higher than for all private sector workers".


The report makes a series of recommendations, including:

  • Local pay bargaining and an end to national strike ballots. The report says: “This would create a situation in which it might make more sense for local union officials to seek better deals than the national one could provide.”

  • Replace the two-year pay freeze on individual salaries with a freeze in the total pay bill for public sector organisations. The report says: “This would allow different trade-offs to be made between headcount reductions and pay cuts in different regions and sectors, saving jobs and promoting efficiency.”

A final word

“Public sector pay has got hugely out of control. There is pressure on budgets like never before because of the deficit. If the unions want to preserve their members’ jobs they have to realise that pay is an issue which will have to be looked at. This is an issue of fairness. It is unreasonable and unfair to expect private sector workers to make all the sacrifices. We need a much better-balanced system of public pay, with organisations like the NHS and schools given greater freedom to vary pay so they can attract staff but also get value for the taxpayer.” - Neil O’Brien, director, Policy Exchange.

Want to know more?

For last year’s Policy Exchange report – Controlling Public Spending: Pay, staffing and conditions in the public sector – click here [downloads 1.6MB PDF].

Policy Exchange describes itself as an “independent, non-partisan educational charity”. It adds: “We work with academics and policy makers from across the political spectrum. We are particularly interested in free market and localist solutions to public policy questions”. For more details visit www.policyexchange.org.uk.

Date 10/05/2011

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