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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  • Comment number 415.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 414.

    It doesn't matter how low you make interest rates.

    Once people cannot service even the capital repayments, debt-based spending is well and truly over.

    That point has been reached.

  • rate this

    Comment number 413.


    Guvnt got in bed with banks when it was supposed to be regulating

    US is due to breakout of the slump next year by some accounts. EZ is still going to be sick as a parrot. UK needs to use low sovereign interest rates to get things moving domestically & it has to do something to address inequality instead of playing Punch & Judy with the population moving from 1 group to another in turn

  • rate this

    Comment number 412.

    A straight forward way to turn around the governments finances would be to increase all income tax, including profits etc, to 100% for a couple of years. Everyone could go on benefits and things should turn about quickly. But, would such power handed to govt. be handed back. I doubt a Tory based govt could stomach the idea though so we shall just have to wait for it to happen anyway.

  • rate this

    Comment number 411.

    409 ~ I got a bit carried away, and went into banking mode, sorry. I AGREE that on paper and intelectually it all makes sense and is clever but disregards human nature. Bankers, god bless 'em, work the system and ever will. They are sharp and live for deals and getting one over. Used car sales in spades. Regulation does not work, confirmed this week by the Govenor. Rotten apples spoil the barrel.

  • rate this

    Comment number 410.

    How many Eurozone nations have received bail-outs todate?Name them.
    When will UK call in the IMF, again?

    Should we be glad public sector pay rises are keeping the economy afloat?
    Are public sector wage increases keeping the private sector in jobs?
    Are public sector wage increases keeing private sector wages low?

  • rate this

    Comment number 409.

    407 stanilic

    Principle problem is the indebtedness of households. If you can explain to me how austerity answers that then I will listen

    405 purple

    Bank deposits up to a level are guaranteed to encourage deposits & mitigate runs on bank, beneficial to all. Providing domestic deposit & borrowing are in balance things work. This occurred up until 2000 thereafter funny money was piped into UK.

  • rate this

    Comment number 408.

    As told here it is now urgently vital :) and imperative that all under the age of 18 are legally denied access to online music, video and entertainment for their own good. Artistr rights violations has gone too far and stealing from performing artists must be hung and fed to wolves.

  • rate this

    Comment number 407.


    Greece & Spain are in a currency union with less indebted countries and so are in a debt spiral. The UK has its own currency which allows a bit more flexibility.

    Austerity is a word for managing your affairs carefully not borrowing a used parachute from an East German and jumping off a cliff without a spare.

  • rate this

    Comment number 406.

    Putting the policy outlined at 405 into practice and law, elevating financial crime to capital status :) with the penalty outlined; might just get the current government re-elected.

    However, whether or not, it would offer great fun on saturday afternoon in competition with the ritual that is soccer. Get hold of their assets, hang 'em high and turn 'em into pet food. Bernie Madoff first.

  • rate this

    Comment number 405.

    Ho hum....

    No one can be trusted, particularly those rewarded for looking after or levying money. It is wrong for governments to guarantee bank deposits. There lies the mechanism by which a nations ordinary people are manipulated by the art of finance.

    Those who manipulate others money to their own ends, ie steal, should be hung with knitting needles and fed to wolves in public arenas.

  • rate this

    Comment number 404.

    395 stanilic

    'Austerity does work only we haven't had any yet'

    Yeah Greece & Spain are doing so well on it & thats why the IMF has suddenly been walking backwards to Xmas

    Here is the group related impact in Spain. In any socioeconomic setup there are vulnerable groups. They vary

    The UK needs to make haste slowly

  • rate this

    Comment number 403.

    397 purple

    There are 2 groups protected - banks and houseowners

    Everybody else can go hang it would seem

    This is Germany, do you think the UK is much different

    BTW the Great Debt was by created banks, guvnt & the public. Strangely enough to lend £s somebody has to borrow. Main beneficiaries Baby Boomers

  • rate this

    Comment number 402.


    'Profit is theft, something for nothing. Profiteers are a huge problem'

    You've got more rabbit than Sainsburys

    The figures given in the link I gave show that UK certainly is not maxed out on public spending within the OECD

    Public spending is not a business, it exists to provide what the private sector does not and to be counter cyclic

  • rate this

    Comment number 401.


    `..leveraged improving equity in property markets'. Posh words for a property bubble. Bubbles need to be deflated.

    Keeping interest rates low is preventing economic recovery as money has no value and hence no return. You proposition is an argument for the current stagflation.

    Is you name George?

  • rate this

    Comment number 400.

    Hello David #386

    I'm a civil servant and it's true we did get small pay increments. So my pay went up by 2% one year and 1.6% the next. Nowhere near 9% - I wish! There have been very few promotions and our department's pay bill has definitely gone down overall. I agree with Stephanie, it's a mystery and worth looking into.

  • rate this

    Comment number 399.

    The world awaiting us next Valentine's Day will be unrecognisable as the potential nightmares we face now. January 1st 2013 is a watereshed with so much scheduled to take place that no~one has a handle on it.

    My chill out is over, good luck to you all.
    Nemo me impune lacessit

    Twickenham 38.21 Soane Turner Swing low.

  • rate this

    Comment number 398.

    IMF policy and practice towards economically challenged nations is isolationists and does not breed or engender confidence. In short, IMF policy, practice and focus is disaster. Never forget DSK or his upcoming continuing humbling and disgrace. This was the head of the IMF.

  • rate this

    Comment number 397.

    395 Stanilic ~ Debt foisted upon economies was product of reckless lending which leveraged improving equity in property markets. That bubble has not burst, and has in fact begun all over again as HELOC. It can be considered investment in the future, but so is buying your home

    Cut interest and pay down principal debt. That creates a growing broad base of wealth. Protect home owners as investors

  • rate this

    Comment number 396.

    It has to date escaped public note, that current intended implementation of Basel Accord stupidities, fundementally undermine and attack the US currency, constitution and Federal Reserve. This began during a period of US panic, angst and vulnerability. It was stupid in the extreme.


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