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Wednesday, 27 November, 2002, 11:06 GMT
The public sector pay dilemma
Public sector worker
Are public workers paid too little?


The public sector employs five million people in the UK.

That's almost a fifth of the workforce who have their wages set not by the market - the forces of supply and demand - but by the government.

Finding the right level for those wages is as much a political as an economic decision. And it's one the government is struggling with.

And the continuing battle with the firefighters over their pay claim is adding to the tensions.

Public sector workers and the government have a love-hate relationship.

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The government loves teachers, nurses and policemen because they hold the key to its much trumpeted promises to reform the public sector.

But they're also wary of them.

They have the power to make life very difficult for a Labour administration through strikes, inflation-busting pay demands - and simply leaving their jobs.

The last thing Tony Blair wants is a return to the "winter of discontent" when the last Labour government was brought down by public sector strikes in 1979.

Underpaid?

So do public workers have a legitimate case for higher wages, or are they cynically trying to grab a slice of the millions of pounds being funnelled into health, education and transport?


An audit commission report said staff shortages could reach crisis point but says stress, not pay, is the number one reason why many workers are leaving

On the face of it, public sector workers don't do too badly in the pay stakes.

They earn, on average, 447.50 a week - only slightly less than the 472 received by their private sector counterparts.

But that masks huge differences.

Many public workers are highly qualified professionals - contracting out means lower paid jobs like hospital cleaners and bus drivers are now mainly within the private sector.

The private sector also encompasses the retail and hospitality industries, both notoriously low paid.

So it's misleading to simply compare averages.

Recruitment problems

There's also no doubt teachers and university lecturers, for example, have fallen behind in the pay race.

Two firemen on duty
Firefighting is popular in Manchester
Earnings in the private sector have risen by almost 37% since 1995, but those in the public are just 28% higher.

That disparity appears to be adding to recruitment and retention problems within the public sector.

An audit commission report published last month said staff shortages could reach crisis point in public services - but says stress, not pay, is the number one reason why many workers are leaving.

"It's not just about pay, and it's not just about managing the big changes currently taking place within the public sector," says Audit Commission Controller, Sir Andrew Foster.

"It is about valuing existing staff, about learning from their experiences in the workplace and using this information to improve the environment in which they work."

Wannabe firefighters

These, of course, are all generalisations - that public workers get paid less and the sector suffers staff shortages as a result.


Chancellor Gordon Brown knows that a successful health service depends on plenty of well qualified, contented staff

Take firemen and university lecturers. A recent advert in Manchester for 50 firefighters attracted 7,000 applicants - hardly the hallmarks of a profession struggling to recruit.

On the other hand, university economics lecturers are a dying breed - there are just 70 people registered to do PhDs in economics in the whole country.

And then there are regional differences.

"Firefighters in the north probably don't need higher pay, it's mainly in the south east," says Andrew Oswald at Warwick University.

"All public sector organisations have to compete with the private sector. And go anywhere an hour's drive from Big Ben and private sector wages are enormous."

Pulling government purse strings

That disparity with the private sector - which tends to widen in boom times as greater competition for staff and widening profit margins mean companies award bigger pay rises than governments - raises the sticky issue of what the government can afford.

The recent wave of high-profile wage demands from firemen to doctors has sparked fears on two fronts.

Firstly that large pay awards will put a hole in the Chancellor's already stretched budget.

Secondly, they may encourage other workers - both public and private - to demand similar rises thereby creating a damaging inflationary spiral.

Both fears are overblown.

Keeping everyone happy

A very large slice of cash has been set aside for public services over the next few years, much of that dedicated to current spending.

In other words, Chancellor Gordon Brown knows that a successful health service (and therefore a better chance of re-election) depends on plenty of well qualified, contented staff.

He will be keen to limit pay awards but has budgeted for them to a certain extent.

There are also few legitimate worries on the inflation front.

Public wage bargaining is extremely decentralised and there are very few areas where private workers directly compete with public ones in any great number.

Therefore a knock-on, inflationary effect on private wage demands is unlikely.

Add in the fact inflation is still comfortably under control, plus a Bank of England set on keeping it that way, and the risk of higher prices looks remote.

The government faces a difficult balancing act between paying too much to public workers and paying them enough to keep them happy.

At the moment it's struggling to find that balance.

It'll have to try harder if it's to fulfil its ambitions of public sector reform.


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