26 July 2018

Have public sector workers really had such a raw deal?


Anyone who works with big sets of numbers knows how easy it is to make them tell the story you want them to tell. Most readers don’t have time to check every source or trawl through the necessary excel spreadsheets, so it can sometimes be very tempting to be selective in your use of data.

One of the classics of this genre is to find the point in the time series where a variable peaks or troughs and start your analysis there to give you the biggest, juiciest numbers possible. There was a lot of that going on  around this week’s announcement of updated pay rises for the public sector.

Whether it was the trade union leaders talking about how hard done by their members have been “since 2010”, or the various graphs which indexed public and private sector pay from 2010 to show how much better the private sector has been doing, the intended messages were clear.

What was almost universally omitted was the fact that in the period immediately prior to 2010 we suffered a deep recession. Unlike the private sector, public sector wages were insulated from the impact of that recession.

This means, for example, that when the BBC’s Kamal Ahmed decided on Tuesday to write about the “years of public sector pay restraint which saw average incomes fall by 4 per cent in real terms between 2010 and 2017”, he was only telling part of the story.

What he failed to note was that the same IFS analysis he was using showed that since 2007-8, while public sector pay was around 4 per cent lower in real terms, private sector pay was actually 5 per cent lower.

For all the rhetoric, the reality is that the slightly bigger pay rises in the private sector in the last few years have been a process of catch-up. The private sector is only now getting back to its pre-crisis level relative to the public sector. Public sector pay is still higher than private sector pay, and once pension provision is taken into account then the public sector premium is quite significant.

According to the Office for National Statistics, last year 94 per cent of public sector workers received employer pension contributions of 12 per cent of their earnings or more, while only 12 per cent of private sector benefit from similar levels; 93 per cent of public sector pension schemes are defined benefit (or ‘final salary’) schemes, compared to just 13 per cent of private sector schemes.

The upshot of all this is that the government really hasn’t been playing Scrooge to the public sector’s Bob Cratchit in the way that has been suggested. It is frustrating that it has nonetheless decided to accept the role and responded by coming out with a smile on its face and a fat goose under its arm on Christmas morning.

This is not so much about profligacy as about priorities. The higher pay settlements are not being funded out of new money from the Treasury. Departments are having to find savings and spare cash from behind the sofa.

The government has suggested that some departments can afford the pay deals because they have underspent their budgets. But that underspend is temporary and therefore not a sustainable way to fund consolidated pay increases.

The decision to put more money into pay may well mean services end up being hit. Take schools. With pressure on budgets already high, half a billion pounds over two years to fund higher pay for teachers is not small change.

There is a related point to be made about jobs. With a finite budget, there is always a trade off between the number of employees and the amount each of them can be paid.

When the government announced in 2015 that public sector pay restraint would continue until 2020, the Office for Budget Responsibility estimated that this would protect around 200,000 public sector jobs. When funding is not going up, lifting the pay cap two years early will surely just mean slightly higher wage packets for a slightly smaller workforce.

Part of the justification for ending the pay cap has been that many areas of the public sector are facing significant problems with recruitment and retention. That line has been a particular favourite of the trade unions, especially the teaching unions, and the government seems to have decided to give in to it.

Do they really think a couple of extra percent is going to make such a significant difference when people are choosing whether or not to enter or remain in the teaching profession? If so then they are ignoring the research which the Department for Education itself commissioned earlier this year. It stated unequivocally that pay was not the driver for most teachers and workload was by far the most significant factor.

At the same time as it announced the continuation of the pay cap, the government also announced it would freeze most working age benefits for four years too. The two policies were based on a similar logic: as the Budget Red Book noted, “since the financial crisis began in 2008, average earnings have risen by 11 per cent, whereas most benefits, such as Jobseeker’s Allowance, have risen by 21 per cent.”

That logic still holds, both for pay and for benefits. Benefit claimants also don’t benefit from the sorts of incremental pay rises many public sector workers receive. Why then has one policy been scrapped and the other has not?

The answer is simple: trade unions. Rising inflation has probably hit benefit claimants harder than public sector workers, but benefit claimants do not have a trade union to organise marches for them.

If there is one lesson to take from the government’s retreat on public sector pay, it is that while the private sector unions are now relatively neutered, unions in the public sector are still able to bring significant political pressure to bear, particularly with the current Labour Party leadership in place.

The unions have successfully managed to assert their own interests at the expense of public services and the taxpayers who use them. That is something which should concern us all.

James Heywood is a Senior Researcher at the Centre for Policy Studies.