Public sector workers ‘enjoying £2,000 premium despite pay freeze’

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Public sector workers enjoy a “pay premium” worth almost £2,000 a year over equivalent employees in the private sector, a free market think-tank has claimed .

A typical public sector worker will earn £1,900 more over a year, even after the two-year pay freeze imposed by Chancellor George Osborne, said Policy Exchange.

Mr Osborne yesterday announced a one per cent limit on pay rises in the public sector in each of the two years after the cap is lifted.

In the report, Policy Exchange published its analysis of the Labour Force Survey’s most recent data, from June-September, which looks at differences in hourly wages between the public and private sectors.

The think-tank found that a typical public sector worker enjoys an 8.9 per cent “premium” in hourly wage over one from the private sector.

This equates to a private sector employee working at around the median hourly wage being £1,900 a year worse off than their equivalent in the public sector.

Towards the bottom of the income distribution, this gap rises to 16.3 per cent, said the think-tank.

A private sector employee working full time on around the minimum wage would be around £2,000 worse off a year.

Matthew Oakley, head of economics and social policy at Policy Exchange, said: “These figures highlight that discussions on the public sector are focusing on the wrong thing.

“Unions are striking despite generous pay and extraordinary pensions arrangements – but they need to start focusing on quality of service, productivity and jobs.

“The Government’s announcements to cap pay and look at ways in which to make pay responsive to local conditions are a step in the right direction.

“However, capping pay increases in the public sector at one per cent for two years is only a short-term solution and stopping short of full localisation of pay negotiation may prove costly.

“We have consistently argued that to boost productivity and protect public sector jobs we need to move towards a system of local pay bargaining that fully reflects the cost of living in different towns and cities across the country.

“This would also let public sector workers to be properly rewarded for outstanding performance.

“Such a change would help boost productivity by making sure that public services are able to function more efficiently and more effectively. It would deliver better public services and boost growth.”

It has been argued that public sector workers have historically enjoyed inferior salary levels to their peers in the private sector.

As a result, it is thought they have had “compensation” for that in the form of a high quality and guaranteed pension agreement.

Although Policy Exchange favours local pay bargaining, unions and Labour MPs have already raised concerns about the effect that such a system could have on the pay of those employed in the public sector.

They claim that such a move could see jobs in parts of the north attracting lower salaries in future, effectively widening the north/south divide.

However employers in areas with a lower cost-of-living believe the change might allow them to compete for staff more effectively with the public sector.