Public sector pay needs to increase to hold on to top talent, says think tank
Higher earners in the public sector have seen real pay fall since the financial crisis, making it more difficult than ever for public services to hold onto their top staff, new data suggests.
Research from the Institute for Fiscal Studies (IFS), shows that public sector pay at the 75th percentile – for those earning more than three-quarters of public sector workers – is now eight per cent lower in real terms than in 2007.
Teachers and doctors have faced even bigger cuts. Average doctor pay last autumn was almost 15 per cent lower than in 2010, while teacher pay was around nine per cent lower.
Stagnation in pay growth among higher earners in the public sector has meant that average public sector pay has fallen further behind the private sector.
By the end of 2023, average pay in the public sector was at roughly the same level as in December 2019, while private sector pay had grown by around two per cent. Private sector pay has outperformed the public sector since 2015, the report noted.
Jonathan Cribb, an associate director at IFS, said poor pay growth had contributed to “problems of recruitment and retention, as well as industrial strife” in public services.
“Pay needs to reflect skills and outside options,” he added.
Mark Franks, director of welfare at the Nuffield Foundation, said: “We all lose out if the government is unable to recruit and retain workers in sufficient numbers, with the most vulnerable members of society often disproportionately affected.”
Pay in the public sector more broadly, however, has actually increase much more than the economy-wide average.
Pay for those earning more than 25 per cent of public sector workers is now 16 per cent higher than in 2007. This means the gap between high earner and low earners has fallen by more than a third since 2007.
Cribb warned this trend might have to reverse to ensure that the delivery of public services remained at a high quality.
“We may need to see pay inequalities in the public sector rise if it is to remain at all competitive with private sector options for higher earners, many of whom play a critical role in public service delivery,” he said.
A similar debate is going on in the business world, where concerns have been raised that the heftier pay packages on offer in the US are sucking talent out of the UK.
A report from Equilar and Deloitte last year found that the median pay package for S&P 500 firm chiefs surged 34 per cent since 2015 to the end of 2021, while London’s FTSE 100 CEOs have taken a pay cut of 13 per cent.
Julia Hoggett, chief executive of LSEG, called for a “constructive discussion” around executive pay last year to help support London’s capital markets.