Public sector pay increases needed to boost recruitment and retention, says think tank

Gap between public and private sector wages is the lowest since early 2000s

The public sector should be given a targeted pay increase by the next government to tackle issues of recruitment and retention, a leading think tank has said.

A new report from the Institute for Fiscal Studies (IFS) said public sector earnings had risen by about 2 per cent in real terms since the end of 2017, and average earnings in both the public and private sectors remained below pre-financial crisis levels.

But it added that pay restraint in the public sector had reduced the gap between public and private sector wages to the lowest level since the early 2000s, exacerbating recruitment and retention issues.

It also noted marked regional differences in pay, with public sector workers in London and the south-east expected to earn notably less than those in the private sector.

It said the next government “may need to consider how funding and pay increases should be targeted to tackle issues with recruitment and retention, and to improve the quality of public services”.

Jon Boys, labour market economist at the CIPD, predicted further pay rises were imminent, noting that hiring intentions in the public sector had improved. “The signals are that it will happen,” he said.

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Karen Grave, president of the Public Service People Managers Association, said pay increases were welcome, but questioned whether they would be enough, both in terms of enabling public sector employers to recruit and retain staff and to help address in-work poverty.

“Many low-paid workers, such as those in care homes, are having to work in multiple roles to keep their heads above water. Any pay rise is welcome, but it is not increasing sufficiently to help bring pay up to the equivalent level as if normal growth had continued since 2008.”

Duncan Brown, head of HR consultancy at the Institute for Employment Studies, said the IFS’s report tallied with recent ONS figures that showed pay rising for public sector employees. “Trying to engage and motivate a workforce for higher performance when they are being paid less than 10 years ago is tough. It’s pretty hard to sell ‘work harder for less’,” he said.

But Brown said that to address skills shortages, pay increases needed to be highly targeted. “Some parts of the country and some skills areas have no difficulty with recruitment and retention,” he said. “Others, like teaching and nursing, local authorities and planning, cybersecurity and risk, do have problems. Recruitment and retention are becoming a real issue.” 

Brown added that in high-demand sectors where public sector employers were competing directly with the private sector – such as cybersecurity and risk – pay levels became even more of a problem, and he questioned the efficacy of strong public sector pensions as a draw for talent.

“The IFS is very correct to say that the public sector pension is worth more than private sector pensions, but if you are trying to recruit a 30-year-old cybersecurity person, they won’t care,” said Brown. 

The IFS report said the government currently spends £190bn a year – or 22 per cent of total public spending – on staff, and employed roughly 5.3 million people. But, it added, the public sector workforce was around 5 per cent smaller than at the start of 2010.