The price of the Public Sector

In the recent days and weeks there has been a huge furore around the public sector pay cap.  The argument has centred around the real term decline in public sector pay, the value we place on our public sector, and the cost it would take to lift the cap.

These figures are important however it doesn’t tell the whole story. Both sides of guilty of selectively choosing their facts and misconstruing figures.

It often heard that the public sector haven’t had a pay rise for the last 7 years, however the cap only came into effect in 2012.  What this also doesn’t mention is what happened in the years prior to this.

Following the crash in 2008, private sector pay crashed to its lowest level in years, with an average wage growth of 1% while the public sector was tracing at the rate of the CPI at 5%. This continued to 2010, whereby the public sector rate dropped to 4.5 percent and the private sector pay started to pick up slightly.

2012 was when the 1% cap was introduced in what was supposed to be a 2 year cap. This was designed to reign in public sector costs, at the time the tax base was decreasing due to lower incomes in the private sector.

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Even though public sector pay has been constrained by the cap, there is still a significant gap between the public and private sector pay. This gap is even wider when you look at comparative roles across the two. (where a comparison can be made).

Also where you look at this on a regional basis, it shows that outside of London and the south east there is a huge differential in pay.

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This figure also holds true when you look across pay percentiles, and the only percentiles which have a negative pay gap is from the 85% upwards.

percentile wage

So what this actually shows is that the real wage compression has actually happened at the top end of the pay not the bottom as has be lead to be believed.

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Also when we look at the state of wages, and how the public sector professions have performed over a longer period of time, we can see that on a whole they have remained within similar percentile wage brackets, the notable exceptions to this are nurses, who have increased from the 48th percentile up the 75th. The main losers though are at the very bottom end where the public administration bracket has dropped quite considerably. This arguably though is due to automation of the admin sector as a whole, and matches trends within the private sector.

The other big elephant in the room is Public Sector pensions.

The fact remains that there is little out there that even comes close in terms of the benefit public sector pensions provide.

David Smith, Tilney Bestinvest

A 25-year-old nurse who earns a £21,692 and joins the NHS pension scheme could end up retiring on a salary of approximately £67,600 a year at the age of 65. This is based of a typical contribution of 7.1% of salary, which is matched by the government. This is based on a 4% growth per year as well. This equates to approximate £31,000 per year as a pension in current terms.

In comparison, a private sector worker who earned the equivalent of the nurse during there life, and achieved five per cent net investment growth per annum within their pension fund, would end up with £6,366 in current terms. 1/5 of the value of the nurses pension.

This worker to match the Nurse would need to contribute 43% of salary gross per year, and amass almost £2.2 million. An almost impossible target.

So when we speak of public sector pay, we really need to look at the whole picture. We need to look at the value we get from our public sector. We need to ensure they are lean and efficient. But we also need to look at the human cost.

Do we as a society believe that a strong pension, and a higher wage for public sector is a fair price to pay for their services?  Or are they demanding more on top of what most people would be lucky to get.

We have stories of Nurses using food banks, which is horrific, ad is a result of the 1% cap, however each of these stories has to be taken on its own situation. A number of years below inflation pay rises, has hit not just workers, but pretty much all workers below the top 15 percentaile since the recession, so while these cases are bad, you can fine equality bad cases elsewhere. That does not make the situation right, however that is a different issue.

What is your opinion on this?

 

Sources

 

 

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