The Senior Civil Service is among the public sector organisations most likely to face recruitment and retention problems for London-based, highly educated staff if limits on public sector pay continue, the government has been warned.
The Institute for Fiscal Studies has reported that in 2016-17 the difference between public and private sector pay returned to pre-crisis levels, with public sector pay particularly low relative to the private sector for highly skilled workers, and those working in London and the south east.
In a report setting out the case for easing pay restraint for highly skilled public sector workers such as senior civil servants and teachers, the IFS predicts that persisting with the 1% pay cap until 2020 would push pay relative to the private sector to historically low levels.
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The gap in pay levels between the sectors widened after the recession, with public sector pay higher after a sharp drop in private sector earnings from 2007.
But now, after seven years of public pay restraint introduced by the 2010 coalition government – and after controlling for differences in workers’ characteristics such as education and experience (public employees are more likely to be better educated) – there is little difference between average pay in the two sectors, the report finds.
Analysing figures on hourly pay from the Labour Force Survey, IFS report author and senior research economist Jonathan Cribb found that graduates working in the public sector earned just 2.3% more than those in the private sector in 2016-17. This is down from a 5.9% gap in 2011-12 and 2.9% in 2007-8.
If this trend continues, Cribb predicts, it will become progressively harder to recruit senior civil servants and other highly educated public professionals.
“If [government] decides to maintain the 1% cap, we should expect increasing difficulties in recruiting, retaining and motivating high quality public sector staff, reducing the quality and quantity of public services,” he said.
The report stated that some pay review bodies have already reported recruitment issues, and concluded that increasing public sector pay in line with prices or private sector earnings would likely mitigate some of the emerging problems.
It also says there is “a more pressing need for pay increases” for public sector staff in London and the south east – the only UK regions where average private sector pay is higher than public pay.
The IFS said it now expects to see greater recruitment and retention issues in London and the south east, which is where most central government organisations are based.
The institute also warned of the price tag of pay rises, pointing out that – compared with retaining the cap – an increase to public sector pay in line with inflation would cost employers around £3bn in 2018-19 and £6bn the year after.
The government has so far only announced details of pay cap lifts for prison and police officers, both to be funded from existing budgets. But, as the report explained, a pay increase for the civil service would cost significantly more than one for the police because of the relative sizes of the workforces.
Cribb said that increasing pay for public sector workers implies substantial extra costs to public sector employers.
“The Treasury could provide extra funds for this by raising taxes, cutting other spending or borrowing more. Asking the NHS, for example, to fund higher pay increases from within existing budgets would be very challenging.”
Public administration employers, including the civil service, would need to see their funding increased by about 0.7% in 2018-19 and 1.1% in 2019-20 if they were to award pay increases in line with inflation without making spending cuts, according to the report.