Senior civil servants should get an average pay rise of no more than 2.8% next year, the Cabinet Office has said.
In evidence to the Senior Salaries Review Body, which makes recommendations on pay for senior officials, the Cabinet Office said its position was based on affordability and the Office for Budget Responsibility’s forecast that average earnings growth will fall to 3% in 2025-26.
Departments would have to fund any increase above 2.8% from their own budgets, according to the letter, as the Treasury “has been clear that there will be no additional funding to departments for 2025-26 pay awards”.
“The Cabinet Office will need to carefully consider the justification for any recommendation higher than 2.8%, and whether departments can make countervailing measures to meet the cost,” it added.
The Cabinet Office's letter to the SSRB has come much earlier in the financial year than in recent years. In October, chancellor of the Duchy of Lancaster Pat McFadden said the government would aim to announce next year’s civil service pay awards “as close to the start of the pay year” as possible.
Last year's rise – of 5% – was not announced until July, three months after the financial year had begun, when newly installed chancellor Rachel Reeves said the government would accept the recommendations of all pay-review bodies for public services.
As well as giving all senior civil servants a consolidated basic pay increase, the letter says the 2025-26 pay award should enable departments to give extra consolidated increases to individuals to “address specific, more serious structural pay anomalies in their workforces” and increase the lower threshold of each pay band for grades SCS1-3.
“For this year, the government’s position is that an award should be targeted to address these [three] priorities, whilst set in the context of the government's wider affordability position,” the letter says.
Addressing 'crossover between pay ranges'
The letter asks the SSRB to consider increasing pay-band minimums, “particularly at SCS1” – deputy director level. This is partly to address “unwanted crossover between pay ranges”.
At the moment, there is significant overlap – with deputy directors earning between £76,000 and £117,800; directors earning £98,000 to £162,500; and directors general earning £128,000 to £208,100.
The letter also notes that recent pay awards for officials at sub-senior civil service level have been “higher than previous years”, shrinking the gap between the highest delegated grades and the lowest SCS grade.
These overlaps “may continue to present a lack of incentive for promotion, and potential leapfrogging”, it says.
The government intends to “rationalise” SCS pay ranges by increasing the pay floor for each grade – but not the ceiling. However, the letter also stresses the need to strike a balance “between funding increases to the minimum and targeting funding towards those low in the pay range who increase their capability”.
Pay progression 'an area of key focus'
The letter acknowledges the pay-review body’s “ongoing concerns” about the lack of a simple pay-progression approach for the SCS – acknowledging that work on a long-awaited capability-based pay progression model was halted in 2023. Last year, the SSRB said commitments to capability-based pay had been “abandoned with belated recognition of its excessive complexity”.
Pay progression is “an area of key focus” for the government's upcoming reward strategy, the Cabinet Office said in its evidence. Early analysis has highlighted pay progression and segmentation as “the priority areas of work” for the strategy, the letter says. It will consider linking progression to areas such as performance or skills – noting that these are “gaps” in the current pay model.
“The Government People Group continues to explore mechanisms that incentivise increases in skills and capability in order to support key delivery for the government,” it says.
“Cabinet Office are exploring this as part of the overall strategy for the SCS, where it remains the government's ambition for a smaller, higher-skilled, productive, and better-rewarded SCS. We would welcome the SSRB’s input to the design of such an approach.”
The letter outlines plans for a “clear leadership and pay framework for the SCS that rewards delivery of better outcomes and that raises the overall capability of the SCS so that it can lead the civil service across the government’s priorities”. The framework will come alongside an SCS strategy, which is set to be published next year.
In last year’s evidence to the SSRB, the Cabinet Office said it had resumed its review of non-consolidated performance-related payments for the SCS, which was paused because of “overall resourcing pressures and competing priorities”.
The Cabinet Office is now in the “scoping stages” of the review, according to this year's evidence, which says draft proposals are likely to consider changes to the size and shape of the non-consolidated pot, as well as the distribution of awards between in-year and end-year.
At the moment, 3.3% of the overall SCS pay bill is allocated for non-consolidated bonuses of up to £5,000 to recognise high performance, both in-year and at the end of the year.
But the evidence so far suggests in-year awards from the non-consolidated performance-related pot are “under-utilised” – and that the size of these awards is “not sufficient to genuinely incentivise high performance”, the letter says.
The evidence also shows there is “significant variance” in how departments split their payments between in-year and end-of-year bonuses; and that while departments “value the flexibility to award staff as they see fit”, they dislike both the lack of consistency in how bonuses are used and the centrally set requirements such as the cap on how much individuals can receive.