Gap in public-private sector pay growth hits widest level ever, as public sector job vacancies hit record high

The UK’s tight labour market has seen the gap between public and private sector pay growth increase to its widest level ever outside of the pandemic period, and public sector vacancies reach a record high – posing delivery challenges to further government-led pay restraint – the Resolution Foundation said today (Tuesday) in response to the ONS labour market statistics.

Labour market quantities remained broadly flat on the month, with inactivity due to long-term sickness ticking up on the quarter, but unemployment and employment rates remaining broadly unchanged.

But with vacancy levels still at close to a record high, the labour market remains tight, which is feeding through into the stronger pay growth. Vacancies in the private sector have been falling for several months, but continue to hit new highs in the public sector – with 330,000 vacancies across the public administration, education, health and defence industries.

Average regular pay grew by 5.7 per cent in cash terms in the three months to September, rising to 6.6 per cent in the private sector. This was the strongest level of pay growth seen outside of the pandemic since records began, though not enough to prevent pay packets shrinking by 2.7 per cent in real terms.

But while pay pressure in the private sector continues to build, ongoing restraint in the public sector has restricted pay growth to 2.2 per cent in cash terms and -6.1 per cent in real terms – creating the widest pay gap on record.

The Foundation says that gap between public and private sector pay growth is unsustainable in the long-run as it will worsen the recruitment and retention challenges for already stretched public sector employers. This will make it harder for the Chancellor to credibly deliver a further period of public sector pay restraint in his upcoming Autumn Statement.

Louise Murphy, Economist at the Resolution Foundation, said:

“The UK labour market remained resilient over the summer, with little sign yet of the rise in unemployment that the Bank – and probably the OBR too – are forecasting.

“Pay growth continues to strengthen in the private sector. This has driven a huge wedge between private and public sector pay, which has been subject to very tight settlements. This wedge is unsustainable in the long run as it creates huge difficulties for recruiting and retaining public sector.

“With public services already stretched and job vacancies already at record highs, it will be hard for the Chancellor to deliver a further period of sustained public sector pay restraint.”