Public sector pay is approaching “historically low levels” in comparison to the private sector and will soon impact the ability of hospitals, schools and other services to hold on to high quality staff, a new report has found.
The Institute for Fiscal Studies (IFS) says official statistics show the case for raising caps on pay in the public sector is gathering speed.
The Government recently indicated that ministers would be able to take a more flexible approach to pay limits and announced a wage rise for police and prison officers, but this has yet to trickle through to areas including teaching and the health service.
The IFS report points out that the gap in pay between the public and private sectors has now returned to pre-2007 levels.
The think tank, which is seen as politically independent, says keeping the 1% limit on pay rises in place is likely to have an impact on the quality of staff working in UK schools and hospitals.
Image: Protests against the public sector pay cap have been held in recent months
Public sector pay has been a key issue in the political debate in recent months and Theresa May is under increasing pressure to take action to relax the wage limits as price inflation in the UK approaches 3%.
When the financial crisis hit 10 years ago wages in the private sector took an immediate dive, and dropped to well below that of their public sector counterparts.
The 1% annual cap on wage rises imposed by the coalition government in 2010 helped to correct the imbalance, but the IFS argues that continuing the measure could result in the scales tipping the other way.
Image: Average real gross weekly earnings in the public and private sectors
“The Government is considering lifting the public sector pay cap for at least some workers,” says IFS senior research economist Johnathan Cribb.
“If it 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.”
But the report is also careful to point out that any decision to lift the cap would not come for free, as it would be likely to cost the UK an extra £9bn by 2020 alone.
“Increasing pay for these workers implies substantial extra costs to public sector employers,” says Mr Cribb.
“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.”
Source: Sky