IFS response to announcements on teacher pay, pensions and school funding

Luke Sibieta, a Research Fellow at IFS said: 

“Today, the government has chosen to follow the pay recommendations from the independent school teachers pay review body. As a result, teacher salaries in England will increase by 3.5% in September 2026 and a further 3% in September 2027. To largely, but not entirely, cover the extra cost of these salary rises, the government is providing the school sector with an extra £700m in grant funding for this financial year (2026-27) and £1.1 billion extra for 2027-28. This is being funded from within the Department for Education’s existing budget.  

These increases in teacher salaries are above the most recent OBR expectations for inflation (just over 2% in 2026-27 and 2027-28), though these forecasts predate the recent war in the middle east. The increases are also slightly above expected growth in average earnings (3% in in 2026-27 and 2% in 2027-28). At their most recent low point in 2022-23, salary levels for more experienced teachers (which is most teachers) were about 12% lower in real-terms than in 2010-11. Despite above inflation increases in recent years and from today’s announcement, we project that salary levels for most teachers will still be about 7% lower in real-terms in 2027-28 than they were in 2010-11. Starting salaries for teachers will be about 2% higher in real terms.  

Combined with other expected growth in schools’ costs, we now expect that mainstream schools costs will grow by about 4% per year in both 2026-27 and 2027-28. Adding the additional funding announced today, we expect that total mainstream school funding will grow by 3% in cash terms in 2026-27 and up to 2.5% in 2027-28. As a result, schools will need to make savings in order to cover expected cost increases over the next two years. The government is explicit about this when it says that it expects schools to cover 1 percentage point of the teacher salary rises by making efficiency savings.  

Alongside these changes in teacher pay and funding, the government is announcing the results of the actuarial valuation of the teacher pension scheme. In May, changes in economic expectations for the long-run meant that the government increased the rate at which it ‘discounts’ future pension costs (rising from 1.7% to 2%). This higher discount rate means public sector pension promises are less costly to make, and so lower contributions are needed to cover them.  

The net result is the employer pension contributions to the teacher pension scheme paid by schools will fall from about 28.7% of gross salary this year to 17.6% from April 2027, only just above the 16.4% rate in 2018. To compensate for the pension cost rises over the last eight years, the government has given schools about £3 billion in annual grant funding. With these costs now coming down again, the government will be withdrawing about £3 billion in annual grant funding. Whilst there are important changes in the way money flows around the system, this should all be approximately neutral from schools’ perspectives. Their costs will go down by £3 billion and their funding will go down by £3 billion. These changes to pension contributions and funding do not represent a real cut to school budgets or to individual teacher pensions.”