Pay awards for public sector workers in Britain are set to overtake the private sector for the first time in four years, according to a report, amid growing business alarm at the government’s tax plans.
After October’s budget confirmed above-inflation pay rises for public sector workers and higher taxes on employment, the Chartered Institute of Personnel and Development (CIPD) said there was a growing divide in the outlook for jobs and wages.
It said businesses were facing increased costs that could “act as a barrier to growth and could lead to employers offering lower pay rises”, just as the public sector started to benefit from stronger pay after years of restraint.
“This should help support the NHS and the delivery of other key public services in the shorter term,” said James Cockett, a senior labour market economist at the CIPD.
“In contrast to the public sector, anticipated private sector pay awards have plateaued and are likely to face downward pressure following the increase to employer national insurance contributions and to the national minimum wage announced in the budget.”
Labour has faced a backlash from large employers after Rachel Reeves announced an increase in employer NICs as one of the largest tax-raising measures. The chancellor also announced that the national living wage would rise by 6.7% to £12.21 an hour in April.
Asda and Sainsbury’s last week said the tax rise would cost them £100m and £140m respectively as they warned they could pass these costs on in the form of higher prices, while it was reported that Tesco faces a £1bn increase in its NI bill this parliament.
The Bank of England has said the budget would drive up inflation to a peak next year while also boosting economic growth.
While it said the rise in employer NICs would play a role, it estimated the impact would be small.
According to the CIPD, public sector pay expectations had gone from the lowest median annual growth rate (2.5%) to the highest (4%) in just one quarter, with even higher awards of 5% expected in the next three months.
In contrast, overall and private sector pay awards over the next three months and 12 months are expected to be 3%.
In one of Labour’s first acts in power it accepted the independent public sector pay review bodies’ recommendations of 4.75% to 6%.
The Treasury said this was “not a decision the government took lightly”, and that it was focused on boosting public sector productivity.
It added: “At the budget we set a 2% productivity, efficiency and savings target to boost public sector productivity and are investing more than £2bn in NHS technology and digital to run essential services and drive NHS productivity improvements.”
Public sector wage growth typically trails behind the private sector. The recent increases follow years of austerity and real-terms wage cuts, leaving swaths of the public sector with a crisis in staff recruitment and retention.