- Picture by Paul Broadrick. Mandatory Credit: Allsport UK /Allsport
- The 1% public-sector pay cap is coming to an end. That’s great for them, but they already earned more than most workers. Public sector workers earn an average of £506 per week. Private sector workers earn only £464 per week. More public sector workers are enrolled in pension plans than private sector workers. Those pensions are more generous in the public sector too.
LONDON – Police officers and prison workers got some good news today: After years in which they were restricted to a 1% cap on pay rises, the Conservative government has decided to give them more money. Prime Minister Theresa May will raise the pay cap to 1.7% for prison officers, and 2% for police officers over the next couple of years.
Other parts of the public sector – perhaps even the NHS, Britain’s largest employer – will be considered next year.
Many will regard this as good news. Police and firefighters have put their lives on the line battling terrorists and the Grenfell Tower fire. Few would deny that NHS workers and teachers ought to earn more money. The prisons are horribly understaffed. And Britain has been worn down by 10 years of austerity economics.
And yet … as Business Insider noted in July, public sector workers are already paid more, and given more retirement money, than private sector workers.
Let’s look at the facts.
- BI Graphics
Few will admit it, but the public/private divide is one of the main causes of inequality in Britain. The reason: public sector workers tend to have generous “defined benefit” or “final salary” pension schemes. In the private sector, those things have been phased out, following a change in the law back in 1986. Even though some public sector workers may be paid less right now, they’re paid thousands more when they retire – money that private sector workers will never see. (And, to rub it in, those public pensions are generated with tax money paid by private sector workers.) Once you take into account pension wealth, public sector workers on average earn more than people in the private sector.
Public sector workers have had their pay rises limited to 1% per year since 2013, following the 2008 financial crisis. After inflation, that has cut the real value of their wages. The TUC published some data on that, noting, for instance, that some government professionals have lost £4,000 or more from the buying value of their salaries. That certainly sounds as if public sector workers have made real sacrifices.
But all workers are affected by inflation, not just public sector employees. So let’s look at actual pay. According to the ONS, average weekly pay for UK workers in March 2017 breaks down like this:
- Public sector workers: £506 per week Private sector workers: £464 per week
- BBC / ONS
The BBC’s page on this is worth reading if you want more context. For instance, private sector pay has been catching up to the public sector over time, and is currently growing faster.
Whether or not £506 per week counts as “overpaid” is a matter of debate. But Chancellor Philip Hammond was right when he said in July that public sector workers are paid more than everyone else, on average.
And that is before you get to the pension issue.
Here is how pensions break down, according to the Department for Work & Pensions.
- Public: 92% enrolled in pensions (4.8 million of 5.2 million workers in total) Private: 73% enrolled in pensions (11.3 million out of 15.5 million workers in total) (Data current to 2016; there are currently 5.4 million public sector workers.)
The distribution of wealth going into those pensions is skewed heavily in favour of the public employees, the DWP says:
- Increase in amount saved from 2015 to 2016:Public sector: £1.8 billion (shared between 4.8 million people = £375 each) Private sector: £2.0 billion (shared between 15.5 million people = £129 each) Total saved, 2016: £87.1 billion
Of that £87.1 billion in pension wealth, public sector workers get more than twice as much as private sector employees (about £8,500 per employee compared to about £4,000 per employee).
As Business Insider’s series on Inequality in Britain has argued, the abolition of defined benefit pensions in the private sector (and the retention of them in the public sector) has stripped workers who joined the workforce after 1986 of about £2.7 trillion in wealth. Those people lose £36 billion a year in personal wealth because of this.
This isn’t just a slight divergence around the mean. This is a major contributor to inequality in Britain today. Public sector workers, a minority of all British workers, are better paid on a weekly basis and twice as wealthy upon retirement than the rest of us, even after a decade of austerity. Public sector workers are only about one quarter or one fifth of all UK workers. Yet taxes in the UK benefit them much more generously than the private sector workers who pay them.
So, while it is great that public sector pay will rise, that is not a solution to a much more important issue for UK workers: The lack of retirement provision in the private sector, and the fact that poorer private sector workers are expected to pay – through their taxes – for the pensions of richer public workers.