Public sector jobs are well down, so why is the pay bill up?

People walking along the riverfront in Newcastle Newcastle is just one of the many UK local authorities that has had to slash public sector jobs, with the council's workforce down by a fifth over five years

George Osborne and the public sector unions were never going to be the best of friends. And the signs are that he will not be throwing them many bones in next week's Autumn Statement.

One of his first acts as chancellor was to announce a two-year pay freeze for two-thirds of public sector workers. There is speculation in Whitehall that he will extend that freeze next week, or at least put a tight limit on next year's pay awards.

Mr Osborne also made clear that he was not worried about public sector job cuts. After years of rapid growth, he expected the number of people to shrink. Though the plan was that it would happen slowly enough for the private sector to make up the lost jobs.

So how is he doing on this crucial piece of the government's budget? That's a question I will try to answer on Friday's TV news.

When it comes to cutting jobs, it turns out that the chancellor has been more successful than anyone imagined (and so, for that matter, has the private sector when it comes to creating them). But that has not translated into a fall in the government's pay bill, for reasons which remain a bit unclear.

Local difficulties

The numbers are stunning. When Mr Osborne announced his first Budget in June 2010, the Office for Budget Responsibility reckoned it would mean the loss of around 66,000 jobs across government in the first two years.

Newcastle city council's finance director Paul Woods Newcastle city council's finance director Paul Woods says frontline services have stood up well

In fact, the number of people working in the public sector has fallen by more than 370,000 just since April 2010.

Where have the jobs been lost? Well, about a quarter of the jobs have gone from central government. But that's actually less than its fair share, given that half of government workers work in this part of the public sector.

The lion's share - nearly 75% - of the lost posts have been in local government, where councils have cut further and faster than anyone expected.

My producer, Mark Broad, braved the rain to visit Newcastle earlier this week (I tried to come too, but was foiled by flooding on the track). The city council there, now Labour-controlled, has cut 1,000 staff already, and another 1,300 jobs will have to go between now and 2015. That's a roughly 20% cut in employment in the space of five years.

When jobs cuts in big Labour city councils were first announced, there was some debate about whether they were overdoing the pain, for political reasons. Others will know better than I whether that's true.

But the city's finance director said he thought that core "frontline services" had stood up remarkably well, at least in this first phase of cuts. The next lot might be harder.

Unexplained pay

We can say, looking at where the job losses across government have come, that "public administration" jobs account for around a third of the lost posts, more than you would expect on the basis of their share of the labour force.

What is the Autumn Statement?

Autumn leaves
  • One of the two major statements the Treasury has to make to Parliament every year
  • Governments decide what form they take and when to make them, so there have been many changes over the years
  • Since 1997 the main Budget - which contains the bulk of tax, benefit and duty changes - has been in the spring before the start of the tax year in April
  • The second statement has tended to focus on updated forecasts for government finances
  • Over the past few years this distinction has become blurred, with the Autumn Statement becoming more of a mini Budget
  • Under the last Labour government it was called the pre-Budget report

Just over a tenth of the jobs lost have been in the police, versus less than 4% for the NHS (which accounts for a quarter of all public sector jobs).

Whether or not any of this is good news for voters, you would have thought it had been good news for the chancellor - that he would have seen an equally rapid fall in the government pay bill. That's not quite how things have worked out.

Though the number of people working for the government fell by 6.4% between April 2010 and April 2012, the government public pay bill (central and local) actually rose by 2%.

That translates into a 9% rise in earnings per head over two years - three times more than the OBR forecast in 2010.

I mentioned that 9% figure in another post, in September. It's a bit of a puzzle, because independent surveys of public sector earnings don't show average public sector pay growing nearly as fast during this period.

'Annual increments'

I've been talking to the statisticians to try to get to the bottom of the puzzle. One reason you might have expected pay to carry on rising was that lower paid workers - around 30% of the total - have received pay rises since 2012.

It's also likely that the people who have gone were paid less than average, meaning the average pay per head would have gone up.

But another, more surprising factor is that a lot of civil servants - in Whitehall departments, but also places like the NHS - have continued to receive the "annual increments" they're entitled to, for building up experience. Despite the pay freeze.

To most people in the private sector, those annual increments look like pay rises.

Job losses would have been that much greater if there had been no pay freeze at all. But the contrast between a 6.4% fall in jobs and a 2% rise in the pay bill is still pretty striking.

The promise to shrink the public workforce is one area where Mr Osborne can say he has over-delivered - though I am not sure he will boast about it in next week's Autumn Statement.

Cutting the amount the government spends on pay has turned out to be a lot harder.

Update 3 December 2012: An earlier version of this blog stated that members of the police might have received increments. This was my understanding from talking to officials in Whitehall. However, the chairman of the Police Federation has told the BBC that all such increments for members of the police force have been frozen.

Stephanie Flanders, Economics editor Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 15.

    Perhaps they aren't sacking the right people. Has anyone looked at how many senior managers there still are at the top of the pyramid, sitting on their bottoms in self-important "policy" meetings and patting themselves on the back for making savings while those at the frontline struggle? It was exactly the same in the early 1990s. We never, never, never learn.

  • rate this

    Comment number 14.

    The pay band increments cannot explain this rise. Most people are on grades with relatively few increments and if you have been in post for more than 5 years the chances are you didn't get anything. In local government the typical person will have had a pay freeze for at least two years and no increments. Unlike the private sector there are no perks. My pay has fallen 14 percent in 5 years.

  • rate this

    Comment number 13.

    The additional cost of outsourcing.
    The true cost of outsourcing is always hidden.
    Profit has to come from somewhere.

  • rate this

    Comment number 12.

    perhaps those that have left have secured good packages, and this is working its way out.

    another example of how badly things are run if this data is not available.

  • rate this

    Comment number 11.

    The same story was in the buisness section of the Sunday Times a few weeks ago, David Smiths analysis is worth reading.

  • rate this

    Comment number 10.

    I think that Stephanie only mentioned annual increments to help explain, partially at least, the anomaly of higher wage costs versus lower payroll numbers. The eligibility to and amount of the increment is work performance related. I dont think she was having a go at the public sector. Perhaps we need to know how much the wage costs would have increased if the 370,000 wwere still in post.

  • rate this

    Comment number 9.

    Wondered how long it would take the Tory cheerleaders to start their usual offensive jibes about 'featherbedding' and 'gross inefficiency' when discussing the public sector. Look, rich boys and girls, just because YOU don't need public sector services, doesn't mean the rest of us ratepayers don't... And what about the enormous numbers of SPADS you've created? That must account for a lot.

  • rate this

    Comment number 8.

    Lack of transparency and clarity in public sector pay - surely all departments should publish pay for ALL levels of staff.
    I suggest too many overpaid chiefs still - BBC Chief Executive pay prime example of how difficult to downsize pay after failure - resign but keep payoff, full pension entitlement etc!

  • rate this

    Comment number 7.

    Are these real job cuts or have they been outsourced? That would account for the speed and effective uptake by the private sector. It would also account for the rise in cost.

  • rate this

    Comment number 6.

    It is very hard to control the public sector Leviathan. Nowhere are vested interests more fanatically defended, under a smokescreen of public service.

    The UK govt has done well in rolling back this monster - OK, progress is quite slow cost-wise, burt just look at the condition of France, Greece etc where the UK would end up without drastic action.

  • rate this

    Comment number 5.

    Stephanie - that backhanded jibe about "annual increments" is nothing short of a disgrace of which you should be deeply ashamed. We don't need people paid very very good wages out of the pockets of ordinary men and women to fan the flames of "private sector- public sector" hostility. If people have had increments they have been entitled to them - they are not "pay rises" from any point of view.

  • rate this

    Comment number 4.

    Those of us civil servants in the MOD don't get increments either, they went out with the pay freeze. That said, the military still do. I think you will find it is just 2 departments to the civil service.

    External appointments are part of the rise. A recruit to the bottom level of the senior civil service typically gets £100k to start - more than £40k over what internal candidates get.

  • rate this

    Comment number 3.

    Not all local authority workers are getting increments either (certainly not in the authority I work for). Our dept has seen a massive reduction in staff (around 50%) and more cuts to come. I am disgusted that Local Authorities have fallen on their swords and borne the brunt of the cuts when Whitehall has cut very little.

  • rate this

    Comment number 2.

    This story sums up the fundamental inefficiency of the public sector. 370,000 jobs gone but it still costs the taxpayer more. No surprise there then. It's probably more overtime, holidays, sick pay, half days and general skiving off that accounts for it. This doesn't even include the gold plated early retirement pensions which are also underwritten by the taxpayer.

  • rate this

    Comment number 1.

    I can categorically state that the police are not getting "annual increments" and in fact will recommence on the scale in 2 yrs time where they left off, not 2 yrs along


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