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 Article written by Stephanie Flanders Stephanie Flanders Former economics editor

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  • rate this

    Comment number 55.

    Ummmmm inflation anyone? a 2% rise over 2 years is equivalent to around a 1.5% drop in real terms when inflation is taken into account.
    Can the BBC not do the maths, or are they trying to be sensationalist?

  • rate this

    Comment number 54.

    the bill will always rise if you cut the work force and end up recruiting part timers or call private contractors to carry out the job at a higher rate.

  • rate this

    Comment number 53.

    49 Walter ~ ABOUT £350 for clearing up if you spill oil onto a motorway.

  • rate this

    Comment number 52.

    Here's an example of what goes on: My wife is a teacher; she got her 'derisory' couple of per cent rise - then she got her automatic, contracted, incremental rise of the pay scale - then her and her colleagues got a 6% over 2 years 'loyalty and retention bonus'. Total pay rise for the year? A little over 9%. Not bad in an era of 'real terms pay freezes'.

  • rate this

    Comment number 51.

    Two points, in the department I am in (it may differ between) we have not had increments for time served, plus the majority of our staff are on the maximum anyway.

    However there has been a large promotion project as we have needed (due to governmental demands) significantly higher skilled staff.

    Also redundancy payments / voluntary exit terms are usually included in the paybill, which is a lot.

  • rate this

    Comment number 50.

    I wouldn't hold the energy companies or banks up as models of perfection when it comes to value for money, customer care or moral examples. They are profligate, greedy, corrupt, coniving, morally and ethically bankrupt private sector disgraces, fleecing the tax payer for every penny they can get and lining their own pockets in the process. No private sector organisation or worker comes close.

  • rate this

    Comment number 49.

    How much is he paying private contractors to do the same work? It looks like he has cut civil servants but the money save simply goes to private companies such as G4S, Serco and a raft of others. Does anyone know how much money is being channelled to these contractors or what we actually get in return? What is the total bill?

  • rate this

    Comment number 48.

    As a new joiner to the public sector world, I joined education in the summer, I was Amazed to learn of the hidden pay rises that many public sector workers have been getting. Where in the private sector can you get a guarantees rise in earnings just because you've collected twelve payslips? You can't! Similarly, the revised pension reforms are still incredibly generous compare to private

  • rate this

    Comment number 47.

    To the private sector everyone in the public sector (except Drs & nurses) are lazy, ignorant plebs who should be on minimum wages & be grateful for it. They probably have friends at the top of the public sector tree though. Back hander in exchange for planning permission anybody? Money talks and those that have it will never share with those that haven't. 'Twas ever thus.

  • rate this

    Comment number 46.

    I'm not sure that incremental pay is in fact a reason for the increase in overall costs. Incremental pay increases, over a long period is, in fact, static. As people reach retirement and leave, at their maximum, new staff are added at their minimum to replace them. So, essentially the cost level is static. Also, the usual way, now, of reducing staff levels is to persuade the older to retire early

  • rate this

    Comment number 45.

    "But another, more surprising factor is that a lot of civil servants .....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."

    Well that's precisely what they are. Pay increases for doing the same job.

  • rate this

    Comment number 44.

    This conundrum is easily explained....

    The plebs lost their jobs, while the massively overpaid managers in non jobs kept theirs.

    Another example that we are not all in this together.

  • rate this

    Comment number 43.

    It's a master plan, get all workers to despise the lazy, workshy unemployed ( majority of whom are not ). Then cut benefits, some in employment will demand it. Next set the private sector workers against public sector, they will have no support from them for the ext round. G4S will be running schools & hospitals soon, along with prisons & work programmes.

  • rate this

    Comment number 42.

    40 further ~ The modern argument is a rivalry, or war if you prefer, between private wealth and collective (Public) wealth. It is about the ownership and monopolisation of... everything by either camp. I do not want billionaires or economists designing and running the world. They are all, very odd types. Very, very, odd and haven't a clue about real life.

    I am not a theory.

  • rate this

    Comment number 41.

    Good old Gideon. Worst chancellor the UK's ever had.

    'Mr Osborne also made clear that he was not worried about public sector job cuts.'

    What a merchant banker you are George. The caring side of the Tories I take it then.

  • rate this

    Comment number 40.

    An unfortunate area of thinking today relates to public workers who are denigrated by the private sector. Publc workers pay tax and probably more than privates, in total. The complaint is against taxation and collective wealth. An alternative privatised world would not offer comparable services for the same money, or you could pay to walk the pavements, for medical needs and everything else.

  • rate this

    Comment number 39.

    36. purple

    I like that last link, long winded way of saying freeze living wages, & get as many as possible on minimum wage. Whilst maintaining or increasing taxes, at the same time cutting services. Then we're competitive, no more need to outsource to India & China.

  • rate this

    Comment number 38.

    The statement about annual increments being a significant factor in an increasing pay is totally wrong. In my section at work only one person in a team of 13 is receiving an increment. His 'promotion' followed the redundancy of 2 other positions In total this saved £50k pa. The rest of us have been on a pay freeze for 3 years. We are all in fear of our jobs .

  • rate this

    Comment number 37.

    Many good comments on how the figures come about. One more I am aware of - upgrading of existing posts (with spurious 'additional' responsibilities).
    Data is needed on the cost of delivering responsibilities or function (ideally outcomes, but often hard in the public sector) to see if real savings are made

  • rate this

    Comment number 36.

    34 Further ~ related link ~ shows some of the thiking that is applied to practical economics (gobbledeegeek) and is beautifully counter~pointed by the first comment on the essay. It chimes also to this thrust at the veracity and intent of current economic schooling. It is banking.


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