Ending public sector pay cap would raise millions and create jobs

Calling time on the Government’s devastating public sector pay cap would create thousands of jobs and pump millions of pounds into the UK economy, according to a landmark report by former IFS senior economist Howard Reed.

The research coincides with a strike by hundreds of thousands of UNISON local government and school support workers in England, Wales and Northern Ireland, who are set to walk out today (10 July) in an increasingly bitter dispute over pay. This year’s pay offer from the Local Government Employers would represent a derisory 1% pay increase for 90% of the workforce, on the back of three years of pay freezes and a below-inflation 1% rise last year.

The latest research, uses figures from the International Monetary Fund to show that every 1% increase in public sector pay would generate between £710 million and £820 million for the Government in increased income tax, National Insurance contributions and expenditure tax receipts, and reduced benefit and tax credit expenditure. It would also inject between £470 and £880 million of extra value into the economy.

The report also reveals that a public sector pay increase could create up to 18,000 full-time jobs.

UNISON General Secretary Dave Prentis said:
“This report pours cold water on the scare stories of Government ministers who claim a pay rise for workers delivering essential public services would be bad for the economy. The Government should look hard at the economic benefits of lifting the pay cap and ending the misery of low pay for public service workers and their families.
“The continuing pay freeze is damaging staff morale and service quality across the public sector, and today our members in local government and schools are saying enough is enough.  By starving local councils of the finance they need to deliver vital public services and pay staff a fair wage, the Government is missing an opportunity to not only inject money into the economy but to create much needed full-time jobs.”

With increasing evidence that the squeeze on public sector pay is damaging service quality, this latest report heaps further pressure on the Government’s punitive public sector pay policy that has caused misery for thousands of public service workers and their families.
The devastating pay freeze has seen pay across most of the public sector increase by just 3% since the Coalition came to power in 2010. This is compared to an increase in inflation of almost 20%, according to the Retail Price Index.

More than 400,000 local government and school support workers are paid less than the Living Wage, which is currently £7.65 and £8.80 in London. One million of these workers earn less than the Coalition’s low pay threshold of £21,000.

Dave Prentis went on to say:

“We know that increasing public sector pay is affordable and would benefit the whole economy, and the Government’s insistence that our members should continue to suffer in the name of austerity doesn’t carry any weight.
“If we want top quality public services, staff must be paid a decent wage.”

Report: Lifting the cap – The economic impact of increasing public sector wages in the UK