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Austerity bites as private sector pay rises above the public sector for the first time since 2010


Ben Chu
Monday 10 March 2014 17:44 GMT
Osborne's austerity policies helped push average private sector pay above public sector pay
Osborne's austerity policies helped push average private sector pay above public sector pay (Ki Price/AFP/Getty Images)

George Osborne’s austerity policies have helped to push average private sector pay above public sector pay, official research has showed.

Average pay for public sector employees in April 2013 was 1.9 per cent lower than the average among private sector employees, according to the Office for National Statistics.

This represents a reversal of the pattern in 2010 when the Coalition took office. At that time, average remuneration levels in the public sector were roughly level pegging with those in the private sector, after making various statistical adjustments.

The figures will feed into the political debate over living standards, which is likely to dominate the run-up to next year’s general election. Labour has accused the Coalition of presiding over a “cost of living crisis”, with average pay rises across the country languishing below the rate of inflation since the global financial crisis.

The ONS said the relative deterioration for state workers was a result of the Coalition’s decision to freeze public sector pay in real terms in 2010 to meet the Chancellor’s objective of eradicating the budget deficit over the Parliament.

The shift is a partial reversal of the trend in the years following the global financial crisis of 2008 when average public sector pay grew more rapidly than pay in the private sector.

The latest figures show that the richest five percent of private sector workers take home 11 per cent more than public sector workers. In London the private/public pay gap for top earners is around 28 per cent.

However, at the bottom end of the pay spectrum public sector workers still do considerably better than their private sector counterparts. Across the UK, the lowest five per cent of earners take home 8.4 per cent more in pay than private sector workers. In London the public sector premium for the poorest rises to 15 per cent.

“Top earners in the private sector enjoy a huge wage premium over the public sector but the lowest paid do even worse than their public sector counterparts” said Frances O’Grady, general secretary of the Trades Union Congress. “If private businesses paid their lowest paid staff more fairly we’d make huge inroads into reducing in-work poverty.”

The ONS data indicated a large divergence in public/private pay around the country. In Northern Ireland average pay in the public sector was 7.1 per cent higher than in the private sector. In the North East the gap was 6.3 per cent in favour of the public sector. However, in London private sector workers earned 11.2 per cent more, while in the South East they earned 6.9 per cent more. In Scotland average private sector workers received 2.5 per cent more, while in Wales they got 2.3 per cent less.

The raw figures from the ONS’s comprehensive annual survey of hours and earnings showed that mean average gross earnings excluding overtime of private sector workers was £16.26 per hour in 2013 versus £14.16 in the private sector. That equated to a pay gap in favour of public sector workers of 14.5 per cent. But the ONS said it was appropriate to make various statistical adjustments to these figures to reflect the fact that, among other things, public sector workers tend to have higher qualifications than private sector workers and that people in the public sector work for larger organisations which pay higher wages. After making these adjustments it said the pay gap swung to around 1.9 per cent per hour in favour of the private sector.

The most recent survey of wages by the ONS showed that average rose by 1.1 per cent in the final quarter of 2013, still below the inflation rate of two per cent. In those three months private sector pay rose by 1.5 per cent year on year. Public sector pay rose by just 0.2 per cent.

In last year’s March budget George Osborne extended the public sector real wage squeeze a further year, until 2015/16.

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