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2 Introduction The 1 per cent public sector pay cap has been in force for seven years. However, it is increasingly likely it will be relaxed in the next budget. And despite a narrative of squeezed public services, the wages, salaries and pensions of those in taxpayer-funded positions are all on average more generous than the private sector. Pension entitlements are a particular outlier. In 2015, 5.6 million public sector employees still enjoyed active membership of defined benefit schemes, with 2.6 million holding entitlements to the most generously denominated programmes. What s more, though private sector membership of those schemes fell by 1 million since 2008, it has in fact risen in the public sector. In spite of those discrepancies, strikes and labour disputes are consistently more prevalent in the public sector. Since 2013, there were on average 15 working days lost per 1,000 workers due to labour disputes in the public sector, compared to just 0.8 in the private sector, a difference of 14.3 days almost 18 times higher. Key findings Average median gross annual pay in 2016 was 25,002 in the public sector, compared to 22,500 in the private sector, 11.1 per cent higher. Hourly median gross pay in 2016 was in the public sector and 11.1 in the private sector, 32.6 per cent higher. Average growth in median gross annual pay for the period stands at 1.56 per cent per year in the public sector, to be contrasted with 1 per cent in the private sector. Median gross hourly pay in the public sector grew on average 1.9 per cent every year, compared to 1.5 per cent in the private sector. Full time public sector employees work on average 35 hours a week, in contrast to the private sector where an average full time employee will work 37.5 hours a week. According to the NHS Pay Review Body, 54 per cent of NHS staff in England were due to receive pay increments of around 3 to 4 per cent on average in in addition to the 1 per cent pay award. In 2016, the sickness absence rate for the public sector was 2.9 per cent compared to 1.7 per cent in the private sector. The rate is calculated by dividing the total number of working hours lost by the total number of hours worked. On the latest available figures, in 2015 there were 5.6 million active members of defined contribution pension schemes in the public sector, in contrast with 1.6 million in the private sector. Of that 5.6 million, 2.3 million were in the most generously denominated programmes. Whilst the number of private sector workers who are active members of defined benefit pension schemes has fallen by 1 million since 2008, in the public sector that figure has increased from 5.4 million in 2008 to 5.6 million in

3 Since 2013, the average number of working days lost due to labour disputes (per 1,000 workers) in the public sector was 15.1 days, while in the private sector it was just days less. 1. Annual Pay At least since 1997 up until 2016, salaried pay has been consistently higher in the public sector, even after adjusting for qualifications. 1 Since 2009, gross median annual salaries in the public sector were on average 12.4 per cent higher. In the past eight years, the gap between the two sectors was widest in 2011, when public sector salaries were higher by 14.5 per cent. In the period beginning 2009 to 2016, median annual salaries never decreased in the public sector. In the private sector, they fell , before recovering in Year Difference (%) ,389 20, ,866 20, ,114 20, ,535 20, ,006 21, ,294 21, ,686 21, ,002 22, Average difference: ,000 25,000 20,000 15,000 10,000 5,000 Median Gross Annual Pay ( ) Approximately 3 per cent difference controlling for differences in age, sex, education, experience and region, but excluding non-pay remuneration such as pensions, which remain more generous in the public sector. It also excludes universities, which are technically part of the private sector. For more information see Jonathan Cribb, Public sector pay in the next parliament, IFS Briefing Note BN210, available at (last accessed 29/08/2017) 3

4 Source: ONS, Annual Survey of Hours and Earnings, Table 25.7a 2. Hourly Pay The gap between hourly wages is even starker, a difference exasperated by the fact that paid hours worked in the public sector are actually lower. Median hourly pay in the private sector has been consistently lower throughout the same period, and the discrepancy kept rising until a peak in 2012, when a recovering economy began to close the gap. In 2016, the median hourly wage was 32.6 per cent higher in the public sector. In the past eight years, the gap was widest in 2012, when the difference stood at 36.6 per cent. Year Difference (%) Average difference: Median Gross Hourly Pay ( ) Source: ONS, Annual Survey of Hours and Earnings, Table 25.5a 4

5 3. Pay Growth The growth in median annual and hourly pay is much faster in the public sector. Since 2009, median gross annual pay has grown at an average annual rate of 1.6 per cent in the public sector, compared with 1 per cent in the private sector. For the same time period, median gross hourly pay has grown at an average annual rate of 1.9 per cent in the public sector, compared with 1.5 per cent in the private sector. Median Gross Annual Pay Year Change (%) Change (%) ,389 20, , , , , , , , , , , , , , , Average: 1.59 Average: 1.03 Median Gross Annual Pay ( ) 27,000 25,000 23,000 21,000 19,000 17,000 15, Source: ONS, Annual Survey of Hours and Earnings, Table 25.7a, own calculations 5

6 Median Gross Hourly Pay Year Change (%) Change (%) Average: 1.88 Average: 1.48 Median Gross Hourly Pay ( ) Source: ONS, Annual Survey of Hours and Earnings, Table 25.5a, own calculations 4. Hours worked Median weekly hours worked have been consistently lower in the public sector than in the private sector. Since 2009, public sector employees have worked around 35 hours a week on average, compared with 37.5 hours worked in the private sector, a difference of 7.1 per cent. For the same time period, the paid hours worked for both sectors stayed flat. 6

7 Paid hours worked per week - Total Source: ONS, Annual Survey of Hours and Earnings, Table 25.9a 5. Pay Increments The 1 per cent cap on public sector earnings does not mean that nobody received a pay rise of over 1 per cent. This is due to the fact that prior to 2010, a significant proportion of the taxpayer-funded workforce had contractually agreed automatic pay progression. 2 So for example, an employee in a pay band between 22,000 and 27,000 would incrementally move up this sliding scale every year (though the terms of this progression vary from profession to profession). In essence, though the boundaries of the pay grades were bound by the cap, progression within a present pay grade was not. Since 2013, these schemes have been gradually wound down. For example, in its latest pay guidance, the Civil Service states that departments must include any remaining contractual progression increments to which there is a legal entitlement as part of the 1% award. 3 Exact levels of remaining automatic pay progression is difficult to estimate, but an outlook can be compiled from those pay review bodies that already filed their reports in addition to comments made by Ministers: The Government has claimed to have data showing that teachers pay has increased by 3.3 per cent last year. 4 2 Jim Pickard, Public sector beats Osborne s pay freeze, Financial Times, 27 August 2012, available at (last accessed 07/09/2017) 3 HM Treasury, Civil service pay guidance 2017 to 2018, 21 April 2017, paragraph 2.2, available at (last accessed 06/09/2017) 4 a lot of those roles have pay increments independent of the 1% cap. Teachers pay increased by 3.3% in the last year for which we have records, so it is not right to talk solely about the 1% cap. In fact, public sector workers are rewarded in a number of different ways, statement by Elizabeth Truss, Secretary of State of Education, during a debate on the public sector pay cap, Hansard, 5 July 2017, vol. 626, col. 1175, available at 82FE4B680D70/PublicSectorPayCap#contribution-7E2FE5AE-C8A5-4D5D-B0EF-C82667D95AC2 (last accessed 06/09/2017) 7

8 According to the NHS Pay Review Body, 54 per cent of NHS staff in England were due to receive pay increments of around 3 to 4 per cent on average in 2016/2017 in addition to the 1 per cent pay award. 5 The School Teachers Review Body has recommended, for September 2017, a 2 per cent uplift to the minimum and maximum of the Main Pay Range, in addition to 1 per cent uplift to the minimum and maximum of the Upper Pay Range, unqualified teacher pay range, leading practitioner pay range, leadership group pay range, all head teacher pay ranges, as well as to the Teaching and Learning Responsibility allowance range and the Special Educational Needs allowance range. 6 However, the report did stress that moving up those scales should be strongly linked to performance. 6. Sickness absence The sickness absence rate is calculated by dividing total working hours lost by total hours worked. As is shown on the graph below, it is consistently higher in the public sector, though the higher likelihood of sickness absence amongst NHS staff should be taken into account when comparing the data. In 2016, the rate was 2.9 per cent in the public sector, compared to 1.7 per cent in the private sector. Across central and local government, sickness absence rates reduced between 2004 and 2016 by 0.9 percentage points and 0.8 percentage points respectively, although the current rates are still above the UK average of 1.9 per cent. Public and private sector sickness absence rates Public Private Source: ONS, Sickness absence in the labour market: Pensions 5 NHS Pay Review Body, Thirtieth Report 2017, Cm 9440, paragraph 2.40, Accessible.pdf (last accessed 06/09/2017) 6 School Teachers Review Body, Twenty-Seventh Report 2017, July 2017, Cm 9454, available at chers_review_print.pdf (06/09/2017) 8

9 Active membership of defined benefit pension schemes amongst private sector workers has fallen from 2.6 million in 2008 to 1.6 million in 2015, but public sector membership already more than double than in the private sector increased from 5.4 million in 2008 to 5.6 million in Defined benefit pensions are schemes which do not take into account the amount accrued in contributions, but rather, promise a pre-determined annual payment or lump sum calculated based on the number of years worked, final salary or career average. These are significantly more generous than defined contribution schemes, where payments are calculated based on the accrued pot. At the beginning of last year, only 11 FTSE 100 companies still had defined benefit schemes open to new accruals, and this number has likely fell further since then. 7 Active membership of defined benefit pension schemes Private sector Public sector Active membership of defined benefit pension schemes Private sector Public sector Source: Occupational Pension Scheme Survey, UK: 2015, Table 3 8. Strikes Despite highly favourable pay and conditions, strikes and labour disputes are markedly more common in the public sector. Since the first quarter of 2013, there were on average 15.1 working days lost per 1,000 workers due to labour disputes in the public sector, compared to just 0.8 in the private sector, a difference of 14.3 days, or 1,776 per cent. 7 Ed Monk, The last gold-plated pensions could disappear from large firms within a year, Daily Telegraph, 19 January 2016, available at (last accessed 07/09/2017) 9

10 Working days lost (WDLs) due to labour disputes, per 1,000 workers Quarter Difference (%) Q ,241 Q ,830 Q Q Q ,380 Q ,882 Q ,3128 Q ,151 Q Q ,022 Q Q Q ,496 Q ,067 Q ,570 Q Q Average: ,940 Difference (%): 1,776 Working days lost (WDLs) due to labour disputes, per 1,000 workers Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Source: ONS, UK Labour Market: July 2017, TPA own calculations Sources and Methodology 1. The Annual Pay and Hourly Pay sections aggregate data from the Annual Survey of Hours and Earnings published every year by the Office for National Statistics (ONS). Figures for annual pay are taken from Table 25.7a, while figures for hourly pay are in Table 25.5a. Both record the median salary/wage for a given year across the public and private sectors. 10

11 2. Pay Growth is calculated using the same data as above. Year-on-year percentage change in salary and wages is calculated for each year, except 2009, as it is the first figure in the time series. The average of the resulting data range gives the average annual growth. 3. The Hours Worked section contains figures from the same dataset as above, more specifically Table 25.9a. The median hours worked per week for the public and private sector are then taken for years 2009 to The data for comparative sickness absence rates in both sectors is taken from an ONS release titled Sickness absence in the labour market: 2016, in particular from Figure 9. Sickness absence rate: by public and private sector, UK, 1994 to Active membership of defined benefit pension schemes can be found in the Occupational Pension Scheme Survey, UK: 2015, more specifically in Table 3, published by the ONS. These are the latest available figures. 6. The Strikes section uses the ONS s UK Labour Market: July 2017 dataset, in particular, the quarterly figures for total size of employed workforce by sector, and the monthly figures for the number of working days lost due to labour disputes. The monthly figures are aggregated into quarters. The number of workers for a given quarter is divided by the number of working days lost for that quarter and the result is multiplied by 1,000 to give a number of days lost per 1,000 workers. This adjustment is done to reflect the differing size of the workforce. 7. All figures are expressed in nominal terms 11