Public sector workers now earn about 6 percent more than their private sector counterparts — triple the gap seen earlier this year — according to a new analysis by the Resolution Foundation.
Research by the think tank shows that a series of wage deals under Sir Keir Starmer’s Government have widened the gap between the two sectors.
The revelation could fuel concerns that Whitehall has prioritized union demands over taxpayers, who faced a £40bn tax raid in Rachel Reeves’ first Budget. Next year’s salary negotiations are already causing controversy as teachers and health professionals are threatening the industry with the Chancellor’s proposal to increase salaries in addition to inflation, which they see as insufficient.
Data shared by the Resolution Foundation shows monthly pay for the public sector – in health, education and public administration – recently topped £2,640, compared to £2,500 for the private sector. The change was largely driven by pay agreements for key groups such as junior doctors, who received a 22 percent increase over two years, and train workers, who received a 14 percent deal and the suspension of some changes in the workplace.
Mike Brewer, interim head of the Resolution Foundation, said: “Private sector pay has risen steadily over the past year, but the real change in the public sector happened in October, when the NHS started to operate.”
However, critics warn that open-plan housing risks fueling inflation, undermining the Bank of England’s plans to lower the cost of living, and siphoning off more money from Ms Reeves’ tax hike without generating the expected revenue for public services. The Bank has recently warned that continued uncertainty over payments threatens to delay potential interest rate cuts, while the Government has refused to back tax hikes.
Central government staff costs rose to £18.3bn in November – a £2.4bn surge on the previous year, official data shows. Ministers are under pressure as departments look at a 2.8 per cent pay rise next year, which is slightly above inflation expectations of 2.6 per cent but still short of union expectations. The British Medical Association called the proposals “a real risk to the continued operation of the industry,” while teaching unions and nursing associations issued similar warnings.
Any larger wage offer would intensify the pressure on the public purse. The Office for Budget Responsibility expects total government spending to rise by £239bn by 2030, surpassing £1.5 trillion for the first time. Britain’s economic recovery remains fragile, with growth flat in the third quarter of 2024 and GDP contracting by 0.1 percent in October, pushing the country closer to recession.
Findings by the Resolution Foundation also show that the highest earners are set for £356 per person next year, equivalent to a 0.6 per cent cut in living standards. The richest 10 households will bear the brunt of Ms Reeves’ record £40bn tax hike, while those on low to middle incomes will see little benefit, mainly due to the expansion of public services and increases in the minimum wage.
While the Labor plan aims to tackle underfunded public services, the tax hike is predicted to hit private sector wages, especially after employer National Insurance contributions rose from 13.8 per cent to 15 per cent. Employers in the private sector are already burdened, while the public sector is free.
Mr Brewer said: “People may not only feel better financially, but the Government hopes they will if public services are not working properly.”
Experts warn that the poor economic climate, along with rising public wage demands, could lead to another round of tax measures. Carl Emmerson of the Institute for Fiscal Studies (IFS) pointed out that since there is a small head of growth, the Government may have to abandon or revise its fiscal policies.
Despite this uncertainty, a Treasury spokesman insisted the Government had “wiped the slate clean” and must now focus on delivering our “Transformation Plan”, which hinges on attracting investment and boosting productivity. Meanwhile, the widening pay gap between public and private sector workers – which is facing intense trade union pressure – underlines the challenges facing Britain’s economy under Labor management.