Public sector workers now earn around 6 percent more than their private sector counterparts – three times as much as early this year – according to new analysis from the Resolution Foundation.
The think tank’s research shows that a series of generous pay deals under Sir Keir Starmer’s government has widened the gap between the two sectors.
The revelation is likely to fuel concerns that Whitehall is prioritizing union demands over taxpayers, who suffered a £40 billion tax raid in Rachel Reeves’ first budget. Next year’s pay negotiations are already becoming contentious, with teachers and medical professionals threatening industrial action over the chancellor’s proposed above-inflation pay rise, which they see as insufficient.
Data shared by the Resolution Foundation shows that monthly wages in the public sector – in health, education and public administration – recently exceeded £2,640, compared to around £2,500 in the private sector. This shift is largely due to settlement deals for key groups such as junior doctors, who have accepted a 22 percent increase in two years, and workforce training, which secured a 14 percent deal and certain workplace reforms discontinued.
Mike Brewer, interim head of the Resolution Foundation, said: “Wages in the private sector have been gradually rising over the past year, but the real change in the public sector happened in October when the NHS pay schemes came into effect. ”
However, critics warn that generous schemes could fuel inflation, undermine the Bank of England’s plans to cut the cost of living and take away the extra revenue from Ms Reeves’ tax rises, without delivering on expected investment in public services produces. The Bank recently warned that persistent uncertainties around wages risk delaying potential interest rate cuts, while the government has refused to rule out further tax increases.
Central government staff costs rose to £18.3bn in November – an increase of £2.4bn on last year, official data shows. Ministers are under renewed pressure as departments consider a 2.8 percent pay rise next year, slightly higher than expected inflation of 2.6 percent but still behind Union expectations. The British Medical Association called the proposals a “very real risk of further industrial action”, while teaching unions and nursing organizations issued similar warnings.
Any higher wage offer would increase the pressure on the public purse. The Office for Budget Responsibility expects total government spending to rise by £239 billion by 2030, exceeding £1.5 trillion for the first time. The UK economic recovery remains fragile, with growth flat in the third quarter of 2024 and GDP contracting 0.1 percent in October, pushing the country closer to recession.
The Resolution Foundation’s findings also show that higher earners face a loss of income of £356 per person next year, which equates to a 0.6 per cent reduction in living standards. The richest tenth of households will bear the brunt of Ms Reeves’ record £40bn tax hike, while lower to middle income households will see small gains, largely due to expanded public services and higher minimum wages.
While Labour’s plan aims to tackle chronically underfunded public services, the tax raid is predicted to depress wages in the private sector, especially after employers’ national insurance contributions rose from 13.8 per cent to 15 per cent. Private sector employers now bear this burden, while the public sector is exempt.
Mr Brewer commented: “People may not feel better off in purely financial terms, but the Government hopes this will be the case as public services become less dysfunctional.”
Experts warn that subdued economic prospects, alongside rising public wage demands, could lead to a new round of tax measures. Carl Emmerson of the Institute for Fiscal Studies (IFS) pointed out that given the limited room for growth, the government may have to abandon or revise its budget targets.
Despite these uncertainties, a spokesperson for the Ministry of Finance insists that the government has “wiped the slate clean” and must now focus on implementing “our Plan for Change”, which depends on attracting investment and boosting productivity . Meanwhile, the growing pay gap between public and private workers – against a backdrop of simmering tensions within the unions – underlines the challenges facing the British economy under Labour’s leadership.