Pay pressures are mounting at all grades of the civil service, according to new research by the Prospect union.
Civil service pay was frozen for two years between 2010 and 2012, and pay rises have since been capped at 1% until at least 2019-20.
Some departments have been given flexibility to award pay rises according to departmental needs as long as the overall pay budget does not exceed the limit. But the new study by Prospect highlights the impact of pay restraint on officials' take-home pay since the Treasury's restrictions were introduced.
Departments get more Senior Civil Service pay freedom as review highlights "major" anomalies
Civil service unions call for "one-off" payrise as senior officials vent frustrations
Jeremy Heywood: Civil servants are “realistic” about the need for pay restraint
According to the union, the average maximum salaries for Grade 6 staff across core Whitehall departments rose by just 3% from 2009-10 to 2016. When compared to rising inflation, that means staff endured a real-terms cut of 16% – or £12,700 – over that period.
At more junior grades, Prospect warned that departments could face affordability and recruitment issues if pay rises fail to keep pace with increases in the National Living Wage.
Grade 7 staff faced a real terms of £10,700, while Senior Executive Officers and Higher Executive Officers – who have had slightly higher rises of 3% and 4% – experienced real-terms losses of £7,600 and £5,800 respectively.
Speaking at a Prospect seminar to discuss the findings, the union's deputy general secretary Sue Ferns said there was a “vacuum at the center of the civil service with regards to strategy on pay and rewards".
She added: "No private sector organisation would see this approach as rational".
Martin McIvor, a Prospect research officer who presented the findings on real-terms pay cuts for senior grades, meanwhile urged staff and unions to build a strong evidence base on the impact of pay restraint on recruitment and turnover.
This would, he argued, contribute to business cases that could convince the Treasury to offer more flexibility to departments, such as those given to the Intellectual Property Office and the Department for Environment, Food and Rural Affairs.
Delegates at the Prospect seminar also heard that pay pressure is building in more junior grades, as Ken Mulkearn, founder of the employment research organisation Incomes Data Research, said the recently-introduced National Living Wage (NLW) was likely to rise faster than public sector pay.
The NLW is currently £7.20 per hour, while minimum wages at the DWP and Home Office – where minimum rates are among the lowest in the civil service – are £8.69 and £8.63 per hour respectively.
This gap could be eroded, he suggested, if pay in the public sector continues to rise by no more than 1% per year, while the NLW is set to rise in line with a formula that sets it at 60% of national median earnings. It is predicted to be between £8.50 and £9 per hour in 2020.
"So civil service wages have a lead on the NLW, but there's not much of a gap, and in order to recruit and retain people at the bottom of pay structures in the civil service it seems to me that you need a bit more of a lead on the statutory minimum,” he said.
There will also be a question of affordability as departments and other parts of the public sector are required by law to make sure their pay rates exceed the NLW.
“If pay rises remain at 1% and you're expected to deal with this issue as well within that envelope, that’s a hard call for HR and reward teams,” said Mulkearn.
He suggested the employers could overcome the challenge by changing the way work is done at lower pay grades, upskilling staff, and expanding roles to enable them to change pay structures.
O'Donnell: “The unions love this — and I think that’s a mistake"
Prospect's findings were revealed as Lord O’Donnell, formerly Britain’s top civil servant, told MPs that he believed there were still fundamental issues with the reward system for officials, and said he had been unable to convince the Treasury to make changes during his time at the top of Whitehall.
Speaking to the Public Administration and Constitutional Affairs Committee (PACAC), O’Donnell — who served as cabinet secretary from 2005 to 2011 — said national pay rates for departments meant London and the south east, where the cost of living is higher, suffered major problems with staff churn.
“Part of the problem is we have a pay structure which is entirely national,” he told PACAC.
“The unions love this — and I think that’s a mistake. Because we have turnover rates that are close to zero in places outside London and the southeast, and we have massive turnover rates in London and the south east. I’ve put this point to chancellors of all different parties - and they’ve all backed off.”
O’Donnell argued that the broader civil service reward package remained too heavily weighted towards pensions in favour of take-home pay — but claimed that ministers would not boost salaries while reducing pensions because of political short-termism.
“In terms of incentivising people that is a very odd thing to do, [to say] ‘We’re going to pay you lots of money when you’ve stopped working for us, not when you are working for us’.
However, he said, tipping the balance to give more pay now and lower pensions had never happened because reforming pensions doesn’t appear on the Treasury’s accounts.
“So the Treasury, in the way chancellors will, says ‘hang on, I’m going to get this pain for cutting pensions, but I’m going to get no credit for it’. So curiously enough, it doesn’t happen.”