In a significant admission, the UK Treasury has confirmed that public sector workers are now financially on a par with—if not better off than—their counterparts in private industry. This revelation comes as Chancellor Rachel Reeves calls for pay review bodies to exercise restraint in their upcoming recommendations.
Closing the Pay Gap
The striking assessment was laid out in official Treasury guidance. It highlighted that public sector pay growth has significantly outpaced private sector pay growth following the bumper settlements handed out by the Labour government after it took power in July 2024.
The document stated the long-debated 'gap' between public and private sector wages, a frequent point of contention for trade unions, is 'currently estimated to be close to zero'. Consequently, 'on a like-for-like basis workers on average are likely to receive similar pay' across both sectors.
The Pensions Advantage
Perhaps more notably, the Treasury acknowledged this comparison does not even factor in the substantial pension benefits enjoyed by state employees. These 'gold-plated' schemes have become a rarity in the private sector.
'This is without considering the role of pensions, which remain substantially more generous in the public sector,' the guidance explicitly noted. This means the overall remuneration package for public servants is likely superior when pensions are accounted for.
A Diverging Jobs Market
This official view emerges against a backdrop of a tightening labour market. The latest Office for National Statistics (ONS) figures show the UK's jobless rate rose to 5.1% in the three months to October, up from 5% in the previous quarter. Excluding the Covid-19 pandemic period, this is the highest level in nine years, with younger workers particularly affected.
Overall employment fell, and the number of workers on payrolls saw a sharp drop of 38,000 in November alone, bringing the total to 30.3 million.
However, the public sector has continued to expand against this trend. By September, public sector employment reached 6.18 million, an increase of 62,000 over the year. This included a record 4.05 million in central government and 2.07 million in the NHS, which saw an increase of 28,000 staff since September 2024.
Pay Growth Figures
The data underpinning the Treasury's conclusion is stark. Annual average regular earnings growth was recorded at 7.6% in the public sector for the relevant period, nearly double the 3.9% rate in the private sector. The ONS noted this was partly due to some public sector pay awards being implemented earlier this year than in 2024.
Overall, average regular earnings growth across the whole economy eased to 4.6% in the three months to October. After accounting for Consumer Price Index (CPI) inflation, this meant real pay grew by 0.9%.
The combination of closed pay gaps, superior pensions, and public sector job growth presents a complex picture for Chancellor Reeves as she seeks to manage the nation's finances while addressing wider economic challenges.
