Average real terms pay in the public sector is set to fall until at least 2019, returning wage values to 2004/05 levels, according to an analysis by the Resolution Foundation.
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In an examination of the impact of the 1% public sector pay cap, the think tank said the limit on increases, coupled with higher levels of inflation, meant pay was falling in real terms across the civil service, as well as education and health and social work.
Today’s Earnings Outlook highlighted that low levels of inflation meant public sector pay values grew in real terms in both 2015 and 2016, despite the 1% limit on increases.
However, it noted that the increase in the inflation rate since the Brexit referendum – it stood at 1.8% in January – would lead to the real term pay values falling for the period of the cap, which the Treasury has said will remain in place until 2019/20.
According to the Resolution Foundation analysis, the value of public sector pay began to fall in the three months to February. By 2019/20, it expects the value of wages will be £1,700 below the peak set in 2009/10. This was before a two-year pay freeze introduced by then chancellor George Osborne from 2010 and subsequent 1% limit on increases to 2019/20.
The pay trends are similar across different areas of the public sector. However, average pay levels in public administration, including the civil service, will be around £28,000 in 2019/20, above the forecast pay level for those in health and social care (just over £27,000) and those working in schools and other parts of the education sector (set to be below £21,000).
Adam Corlett, an economic analyst at the think tank, said rising inflation would limit real terms pay growth across the economy but the outlook for the public sector was particularly weak.
“Although public sector pay restraint is important to the government’s deficit reduction plans, falling real pay is likely to see increasing recruitment strains,” he warned. “The government should be planning now how to manage those strains, alongside any wider changes to policies like migration that will also have an impact.”
Commenting on the figures, Public and Commercial Services general secretary Mark Serwotka said there was now an overwhelming and unarguable case to end the public sector pay cap to prevent a further decline in living standards.
“All the analysis shows wages across the economy are stagnating, but the government can kickstart the revival by lifting the 1% cap in the public sector," he said.
“Since 2010, the government’s own workforce has lost out more than any other sector and these are the ‘just managing’ families the prime minister promised she would help.”