Increases in public sector pay announced today could cost around £800m per year

Published on 24 July 2018

Today in Parliament, Chief Secretary to the Treasury Elizabeth Truss announced pay awards for some public sector workers. Around one million school teachers, prison officers, members of the armed forces, police, doctors and dentists will see their pay rise between 2% and 3.5%. IFS researcher Jonathan Cribb and IFS fellow Luke Sibieta have looked at the implications of today’s announcements.

Paying public sector workers costs £180 billion per year – about 9% of GDP. It is the second largest item of government spending after social security payments. Each 1% increase in pay for the public sector workforce costs the government about £1.8 billion per year. In 2010, the government froze public sector pay for most employees, and since then it has increased by only 1% per year.

Where will the money come from?

HM Treasury has stated it will not provide new money to fund the pay increases, meaning that government departments will have to find the cash. We estimate that today’s announcements will cost around £800 million per year extra compared to the 1% increases previously planned for – with the largest cost to the Department for Education and the NHS.

Today, Ms Truss said that the Department for Education would provide £500 million from its central budgets for teachers’ pay. Other departments, she said, had been able to find savings. While there have been suggestions that departmental ‘underspends’ could be used to help fund higher pay, this is at best a temporary solution. Other savings within departments’ squeezed budgets will, at some point, need to be found.

Commenting on school teachers’ pay, IFS Research Fellow Luke Sibieta said:

“Today's announcement of a 3.5% pay rise for teachers on the main pay range will help with recruitment and retention for teachers early in their career, which has emerged as a serious problem in recent years. However, about 60% of teachers will receive below-inflation awards of 2%, or in the case of school leaders 1.5%.”

Senior Research Economist Jonathan Cribb said:

“With today’s announced pay increases, it looks like lower earners – particularly new teachers – in the public sector are catching up slightly with private sector. But higher earners – such as doctors – are still falling behind the private sector average."