New research highlights the pay penalty that public sector workers are facing in comparison to private sector workers in similar roles. The report adds that the pay freeze that is due to be introduced in 2021 for the public sector will further widen this gap. 

Research from the Resolution Foundation, an independent think-tank focused on improving the living standards for those on low to middle incomes, finds that public sector workers affected by the pay freeze next year already face a pay penalty compared to private sector workers in similar roles.

In addition, the research finds that private sector workers will enjoy a pay premium as a result of not being subject to pay freezes.

Prior to this research, it was hoped that the one-year pay freeze to public sector workers’ salaries would help to even out the playing field and reduce the pay premium that public sector workers were previously enjoying.

However, data within Resolution Foundation’s research indicates that this may not be accounting for all the information. It claims that, since 2010, public sector workers had been subject to a decade of pay restraint which brought the pay premium down to 0 by 2019.

It further states that the current design on the public sector’s pay freezes may mean it is not fit for purpose to address any pay premiums that may have arisen as a result of COVID-19 as it is imposed on workers who are already subject to lower pay.

Although it is undeniable that the private sector was significantly impacted by COVID-19 – with the proportion of employees in this sector facing pay cuts quadrupling from 5 to 20 per cent – the report suggests that some workers within the public sector are also struggling too.

It outlines that public sector workers affected by the pay freeze coming into effect next year – such as those in local government and education – actually already face a 7.9 per cent pay penalty compared to private sector workers in similar roles.

Additionally, around 2.9 million people who work within the public sector and are exempt from the pay freezes enjoy a pay premium. It claims that staff such as NHS workers and staff earning less than £24,000, already have a pay premium of 6.7 per cent over their private sector counterparts.

The report suggests that there could have been other factors driving the Chancellor’s decision to introduce pay freezes for the public sector.

Most notably, employees affected by the freeze live in relatively high-income households – with their typical income of £36,300 well above that of private sector workers (£28,700) and public sector workers not affected by the freeze (£28,200).

Furthermore, with the Chancellor announcing a £10 billion a year cut in public service spending from next year, the Resolution Foundation suggests that the public sector pay freezes may have been more motivated by a desire to cut back on spending and save costs.

Ultimately, the research concludes that there is no necessity for the adjustment to public sector pay to happen immediately next April when the economic challenges of the pandemic will still be present.

Hannah Slaughter, Economist at the Resolution Foundation, said:

Public sector workers have traditionally enjoyed a pay premium over private sector workers, though a decade of pay freezes and caps after the financial crisis had reduced that premium to zero overall.

We have now entered a fresh phase of pay turmoil – with millions of private sector workers facing job losses, furlough-induced pay cuts or pay freezes.

The Government has justified the coming public sector pay freeze on the basis of the pay premium these workers will experience as a result of the pandemic. But this is a very poor description of the impact of the policy – with the freeze largely falling on those already experiencing pay penalties relative to the private sector.

Going forward, Ministers must be mindful that while public and private sector pay do move in line with each other over the longer term, there are risks in making that adjustment next April when the economic challenges of the pandemic will still be immense, and consumer confidence needs supporting.

*This research was taken from the Resolution Foundation’s latest Earnings Outlook which examined the pay of the 2.6 million public sector workers subject to the coming one-year pay freeze, along with the 2.9 million who are exempt.