Local Pay, Local Growth: Reforming pay setting in the public sector

Tuesday, 04 September 2012

Local Pay, Local Growth: Reforming pay setting in the public sector


Rebalancing the pay and pensions of public sector workers so that they are in line with that of equivalent workers in the private sector would save the UK £6.3 billion a year in public spending. This money would be better spent on tackling local unemployment and could create at least 288,000 private sector jobs – or the equivalent salaries of 332,000 more nurses or 252,000 more teachers - in some of the areas of the country suffering most from the impact of the recession.

The report – Local Pay, Local Growth – says that the public sector 'premium' – the additional pay a typical public sector worker receives over a private sector worker – now stands at around 7% for the average worker. Combined with increased generosity in pensions the total ‘premium’ is nearly 14% for the average worker in the public sector. In some parts of the country, some public sector workers are seeing premiums over their private sector counterparts that are as high as 25%.

The report, co-written by a former Treasury civil servant, argues that this situation has arisen because of the system of national pay bargaining, which means that workers are paid the same amount regardless of where they live. It recommends abolishing this system and enabling local public sector employers to choose systems of pay that reflect local living conditions and vary pay awards by the performance of employees.


"[The Prime Minister] should be thinking the unthinkable to create jobs. He should certainly consider Policy Exchange’s proposal today to rebalance the pay and pensions of public sector workers to align them with equivalent private sector employees."

Allister Heath - Editor, City A.M.


"This report represents a welcome contribution to the regional pay debate. The idea of reinvesting the savings made back into areas that are currently suffering the effects of the economic downturn is one that must be explored further and could prove critical to addressing business concerns about the proposals.

"The Government remains committed to the introduction of regionalised pay so it is important that the proposals are considered thoroughly and objectively and a system is found that will promote genuine growth in North East economy."

Ross Smith - Director of Policy, NECC

"The abolition of national pay bargaining is long overdue. The current system has serious cash and efficiency costs, and makes it more difficult for businesses around the country to compete. As well as saving taxpayers’ money, localising pay bargaining would allow managers, headteachers and others to introduce proper performance-based pay. Reforming the system of setting public sector pay would make the public sector more efficient and the economy as a whole more competitive. Decentralising pay isn’t just about saving money, it could revolutionise our public services."

Graeme Leach - Chief Economist, Institute of Directors

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local pay, local growth: reforming pay setting in the public sector