Policy Exchange research: Public sector receive 43% more in pay and pensions than private sector

Public sector staff receive 43% more in pay and pensions than employees in the private sector, according to research from think-tank Policy Exchange.

The research, Public and private sector terms, conditions and the issue of fairness, shows that despite the coalition government’s attempt at pay restraint, public sector salaries continued to rise as late as December 2010. 

That was despite pay for many employees in the private sector actually falling even before inflation is included, meaning that many private sector staff will have seen drastic cuts in their standard of living.

This study shows that the public sector premium – the additional pay a typical public sector worker receives over a private sector worker – is now up to 35% calculated on hourly pay. For typical annual pay the premium is up to 16%.

This research updates a previous study from Policy Exchange which showed that 2009 was the first year in which average pay for public sector staff as a whole was now on average higher than for all private sector workers.

Public sector pay premiums rose in every part of the earnings distribution in 2010 apart from at the very top. Pay shrank for the bottom 30% of private sector workers. The public sector pay gap continued to increase up to December 2010 in spite of pay freezes.

Public sector incomes have grown at double the rate of the private sector since 2002. Since the start of the recession, the hourly pay premium for the typical public sector employee has increased. 

After taking into account differences like age, experience and qualifications, the hourly pay premium for a public sector employee was 8.8% as of December 2010. This almost doubled from 4.3% two years earlier.

The public sector pay premium for a typical employee increased in every region of the UK between 2009 and 2010, except in Yorkshire. As in 2009, the largest premium was found in Wales and then the north west of England.

In Scotland, the north east, the north west and Wales, a typical public sector employee can expect to be paid a fifth more than the typical private sector employee. The only group where private sector pay is actually higher than the public sector is for the top 10% of earners.

The report makes a series of recommendations, including:

  • Local pay-bargaining and an end to national strike ballots. This would create a situation in which it might make more sense for local union officials to seek better deals than the national one could provide. This would allow the UK to follow the example of Sweden, which combines organisational-level negotiation of terms and conditions with workplace or individual negotiation of pay.
  • Replace the two-year pay freeze on individual salaries with a freeze in the total pay bill for public sector organisations. This would allow different tradeoffs to be made between head count reductions and pay cuts in different regions and sectors, saving jobs and promoting efficiency.
  • Reforming public sector pensions. This would involve imposing an increased public sector pensions levy, as in Ireland, and transitioning new public sector workers onto defined contribution (DC) pensions, as in the private sector.

Neil O’Brien, director of Policy Exchange, said: “Public sector pay has got hugely out of control. There is pressure on budgets like never before because of the deficit. If the unions want to preserve their members’ jobs they have to realise that pay is an issue which will have to be looked at.

“This is an issue of fairness. It is unreasonable and unfair to expect private sector workers to make all the sacrifices. 

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“We need a much better-balanced system of public pay, with organisations like the NHS and schools given greater freedom to vary pay so they can attract staff but also get value for the taxpayer.”

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