Public Sector Pay Cap

5th July 2017

I am extremely grateful for all the huge amount and diversity of work contributed by those working in the public sector.  Without it, this country would simply not function, and I therefore fully appreciate the concerns that you and many others are expressing around pay caps and know that the Government is and will continue looking into this issue.   

But it isn't as simple as writing down a promise on a piece of paper. 

You're probably sick and tired of hearing about the deficit but it still remains the biggest millstone around the nation's neck.  It has been hugely reduced but still stands at an astonishing 52 thousand million pounds every year.  That's the amount we are spending every single year above and beyond what the Government collects in taxes.  To balance the books we have to borrow that amount or raise taxes.  To put all this in perspective, interest payments on the outstanding debt is now running at over 50 thousand million pounds each year.  That's bigger than the schools budget and policing budget combined and the third biggest spending item in Government. To put it another way, it's nearly half of what we spend on the NHS.

The point here is that if we, the current generation, carry on spending in this way it is grossly unfair to those that follow. You, your children and grandchildren will be paying for my generation's inability to curb our profligacy.  I don't know what you think, but I just don't think that's right or sustainable.  You would never run your household finances that way and we shouldn't run a country that way either.

That's why we care so much about what looks like such a dry and technical issue.

The problem of course is that much of the spending we need to curb isn't just 'spending' it's about people and their livelihoods.  Yes public services are about buildings and drugs and equipment but most of what is spent is about people who the State pays to provide those services which we all value so much.

And therein lies the great challenge.

If we are to run the country on money received from taxes collected today - rather than borrowing and piling up the burden on generations not yet born - it means we have very little option but to cut spending on people, however much we might not want to do so.

To put this in perspective, 25% of the workforce is employed in the public sector so the bill for increasing pay even by a small amount is enormous.  The Institute for Fiscal Studies (the most highly respected independent organisation that analyses Government spending) reports that if we followed Labour's plan on public sector pay rises, it would cost £54 billion over the Parliament.

However, this Government does of course recognise the important contribution made by public service workers.  That is why there are a number of benefits which public sector workers enjoy, most notably to their pensions which are still typically more generous than those available in the private sector.  

Furthermore, since 2010, the Government has introduced changes to tax levels such as raising the tax-free personal allowance from just £6,500 to £11,600, which means the personal allowance is now around £3,575 higher than it would have been if left to increase by inflation since 2010.  This has saved a person paying the basic rate of income tax £715 in 2017/18.  By comparison, if their income had increased by inflation rather than 1%, someone earning the average nurses salary would have only seen an increase of around £630.  So by introducing these progressive changes to the personal allowance, those at the lower end of the income scale, including many frontline public service workers, have seen increases in their overall take-home pay packet higher than by just raising their salary in line with inflation.  

Additionally, overall average pay for public sector employees is now equal to that of the private sector, and in some areas it is even higher.  It is also true that the wage growth of those in the public sector is not always as clear as it seems.  For example, because of grade progression, the average nurse's wage in the NHS has risen by 3.4% a year, over and above the 1% pay cap.