Public sector pay


Earlier this week on Comment Central, Daniel Finkelstein noted that contributors to ConservativeHome's 'Star Chamber' seem to be having trouble identifying any substantial cuts to make in public expenditure. He also said, " I have always argued that there has been a tendency on the right to be flippant about how easy it is to control public spending."

He may be right. Controlling public spending probably is pretty difficult, given the nature of democratic politics. After all, even when Margaret Thatcher was prime minister, public spending grew at an average of 1.2 percent a year in real terms – and she was accused of savage cuts.

But that doesn't mean that cutting spending is impossible. Nor does it change that fact that – given the dire state of Britain's public finances (the government is now overspending by £20m per hour, twenty-four hours a day, seven days a week) – cuts are absolutely necessary. The question is where to start.

My top candidate would be public sector pay. As Mike Denham has pointed out on the Taxpayers' Alliance's Burning Our Money blog, as of April 2008:

  • Average pay in the public sector was £582pw, compared with £574pw in the private sector.
  • Median pay in the public sector was 13 percent higher than in the private sector.
  • The median public sector pay had risen by 49.6 percent since 1997, compared with 48.8 percent in the private sector.

However, over the course of 2008, private sector pay fell by 1 percent, while public sector pay went up by 4 percent – so the gaps are now much wider. Furthermore, those figures do not take account of the other benefits – like gold-plated public sector pensions, for instance – that workers in the private sector can only dream of.

Total public sector pay is currently running at £160bn. If you were to cut it by 10 percent immediately, and then freeze it in real terms, you'd save around £60bn over three years.

Reform's recent report Back to Black made some more nuanced suggestions. Freezing all civil service salaries would save approximately £166m this year, and £169m next year. If no civil service bonuses were paid, around £25m a year would be saved. Alternatively, switching the civil service to a four-day week and cutting their pay by 20 percent would save £2bn a year. Reducing the pay of doctors (whose pay has rocketed in recent years) and NHS managers by 10 percent would save another £1.3bn a year.

There is no shortage of other options.