As public sector pay falls, should the coalition do more to close the gap with private wages?

YESWe should not be too concerned about short-term changes in the raw difference between public and private sector pay. A typical public sector worker still enjoys an hourly pay premium of 6.1 per cent when adjusted for age, gender, full-time and part-time work, region, qualifications and length of employment: around £1,400 a year – and as high as £3,200 in some parts of the country. This premium has been relatively steady since the coalition’s decision to freeze public sector pay scales. However, this does not include non-pay remuneration and benefits, such as longer holidays, earlier retirement and more generous public sector pensions. To go further, we need to recognise that pay freezes and rigid national pay scales are not part of the solution. We need to abolish national pay deals and move to a more flexible system which better reflects local needs.

Ed Holmes is senior research fellow in Policy Exchange’s economics and social policy unit.

NoThe ONS yesterday reported a fall in average public sector earnings of 0.5 per cent between June and August, the first time a drop has been recorded since records began in 2001. This is truly a sign of the times. In an era of constrained public spending, there is an inevitable trade-off between staffing levels and wage levels, so some restraint on pay is welcome. In the boom times there were some big mistakes with public sector pay, such as GP contracts, which offered too much in exchange for too little. However, in other areas, such as social care, pay and service quality remains too low. In the long term, the best way to close the gap between public and private sector wages is to level up, rather than level down. Over the last three years, almost four-fifths of the jobs created in the UK have been in industries where the wage is below £7.95 an hour. Britain needs more good private sector jobs, not just public sector restraint.

Duncan O’Leary is deputy director of Demos.