Over the past six months, typical pay settlements for government employees have experienced a substantial increase and are projected to exceed those available in the private sector next year for the first time since 2020.
According to a survey conducted by the Chartered Institute of Personnel and Development (CIPD), public sector workers are expected to see raises of 5% in the next three months, a notable increase from the 2.5% earlier this year.
The CIPD attributes this trend to Chancellor Rachel Reeves's announcement in late July regarding inflation-adjusted pay increases for various public sector roles.
In contrast, private sector employees facing pay reviews can anticipate an increase of only 3%, a decline from the 5% they received a year prior.
This situation follows Rachel Reeves's introduction of significant tax increases in her Budget, which includes a £25 billion rise in National Insurance contributions that employers are required to pay on their employees' wages. The Office for Budget Responsibility has indicated that approximately three-quarters of this burden will ultimately fall on workers through reduced pay increases.
The Government asserts that this does not violate its manifesto commitment not to raise National Insurance contributions, claiming that the promise pertained solely to direct taxes on "working people."
Public sector employers will receive compensation for the costs associated with the National Insurance contributions, ensuring that neither they nor their employees are adversely affected by this tax adjustment.
One of the Government's initial actions was to authorize substantial pay increases for numerous public sector employees, and it is expected that higher spending will continue in the coming years as a result.
The CIPD characterized this as a ”post-election recovery in the public sector,” which also reflects an increase in hiring expectations for government employees.
James Cockett, an economist with the industry group, remarked that this development is “a positive sign for public sector employers and employees,” but emphasized that it must be paired with enhanced productivity to ensure its longevity.
He further noted, “Enhancements in people management skills and the adoption of technology will be essential to improve efficiency in the public sector, enabling it to meet growing service demands and budgetary constraints in the long run.”
‘Obstacle to growth’
Nonetheless, he highlighted the stark disparity in the Budget’s approach towards private sector workers.
“Unlike the public sector, expected pay increases in the private sector have stagnated and are likely to experience downward pressure due to the rise in employer National Insurance contributions and the National Minimum Wage adjustments outlined in the Budget.
“These heightened business expenses may serve as a hindrance to growth, potentially resulting in employers providing smaller pay increases, exercising caution in investing in employee skills, or hesitating to hire new staff.”
According to the executives surveyed by the CIPD, the fastest growth in headcount is anticipated in healthcare and social care, as well as in construction.
Only modest increases are projected for education, while employment in public administration is expected to decline despite significant government spending and borrowing.
A Treasury representative stated, ”During the Budget, we established a 2% target for productivity, efficiency, and savings to enhance public sector productivity, and we are allocating over £2 billion towards NHS technology and digital initiatives to support essential services and improve NHS productivity.”
The primary objective of the Government is to foster growth, with a significant emphasis on enhancing productivity to ensure robust economic development and elevate living standards. To achieve this, the Government is collaborating with businesses and various stakeholders to formulate a comprehensive industrial strategy by spring. Additionally, plans will be established for each of the eight growth sectors, reinforcing our commitment to support their success.