IFS response to public sector pay announcements

The government has today announced a series of public sector pay awards for those covered by the Pay Review Body process (largely but not exclusively applying to England). IFS researchers provide an initial response below.  

Responding to the announcements, IFS Associate Director Ben Zaranko said:  

“Last year’s public sector pay deals were above what had been budgeted for – so far above that, to pay for them, the new government felt it had to substantially top up departmental budgets after taking office. This year, pay awards are once again above what departments declared would be affordable, but not to anything like the same extent. In particular, the fact that the 3.6% pay award for most NHS staff – by far the largest group – isn’t a million miles away from the 2.8% increase that the department said was affordable, will limit the fiscal impact. Pay awards elsewhere, for teachers and prison officers, are a little higher at 4%, reflecting persistent difficulties with recruiting and retaining staff in those areas.

The gap will, nonetheless, need to be plugged from somewhere. It may be that public service leaders are able to eke out additional efficiency savings to make the sums add up. For the NHS, the government has said that achieving pre-existing productivity targets for this year should be sufficient to avoid cutting frontline services. Schools will still need to find savings totalling about 1% of their budgets to afford these rises, even after additional grant funding from government. It could be that efficiency savings prove insufficient and further savings have to be found from elsewhere, including from capital budgets, which  might impede efforts to boost public service productivity.  

Higher pay this year also means higher pay in future, meaning today’s announcements have implications for the settlements that will be announced in the forthcoming Spending Review on June 11. And, if agreeing pay settlements this year was tough, when day-to-day funding is increasing by an average of 2.5% in real terms, then agreeing pay deals next year, with planned funding growth of 1.8%, will be even harder.”

On the teacher pay awards specifically, IFS Research Fellow Luke Sibieta said:  

“Today’s pay awards of 4% for teachers and 3.2% for support staff are both above the government’s initial offer of 2.8%. However, average earnings growth is currently expected to be 3.7% for this year, which is more than was previously expected. These pay offers are likely to represent small real-terms rises, given that inflation is expected to be about 3% for the current year as a whole.  

The government is providing an extra grant to schools to help cover most of the costs. However, to afford the pay offer, schools will still need to find savings elsewhere of around £400 million or just less than 1% of their budgets. This is a bit less than was assumed a few months ago in the government’s proposals to the pay review body, which will probably come as a slight relief to schools.  

Given that the pay offer is only just above inflation, the real-terms cuts to most teacher salaries since 2010 still remain in place. Following on from these pay rises, most teacher salaries will be about 8% lower in real terms than in 2010. However, because of recent boosts to starting salaries, salary levels for new teachers will be about 1% above their 2010 level in real terms.”