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Public sector workers in the North East, Merseyside and South West of England earn as much as £3,200 more than their equivalents in the private sector.

Analysis of the most recent Labour Force Survey data (January-March 2013) by the think tank Policy Exchange reveals that there is still a significant gap between public sector and private sector pay, the amount varying dramatically from region to region.

The paper found that:

• The average public sector worker benefits from a 6.1% pay ‘premium’, meaning that they can earn as much as £1,400 a year more than someone in the private sector, taking into account age, gender, full time and part time work, region, qualifications and length of employment. This represents almost a 20% and 8% rise respectively in the premium compared to the same quarters of 2007 and 2010.
• The average premium has been relatively steady since mid 2010 suggesting that the Coalition’s decision to freeze public sector pay rises is starting to re-alter the balance.
• In the North East, Merseyside and South West the public sector 'premium' is as high as 14% or over £3,000 a year.
• In central London, the East and South East, the average public sector worker gets paid less than their private sector equivalent.

The report, written by a former Treasury civil servant, argues that the variation in pay has arisen because of the system of national pay bargaining, which means that workers are paid the same amount regardless of where they live. The paper recommends abolishing national pay deals and moving to a system which can reflect local labour markets and reward performance. It also urges the government to push ahead with its plans to remove automatic pay uplifts across the public sector.

A previous Policy Exchange paper said that 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 £6.3billion a year in public spending. This money could 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 poorest parts of the country.

Matthew Oakley, head of economics and social policy at Policy Exchange, “Nationalised pay negotiation is not fit for purpose for the modern public sector. It is bad for the economy and bad for public services. While the unions should still have a strong role in the future, we should move to a system where local public sector employers can decide how to negotiate salaries with employees in order to reflect the realities of their local labour market. At the same time as freeing up money for infrastructure and local growth projects, this will enable top performing public sector workers to be paid more, increasing productivity and improving public services.”

For more information contact Nick Faith on 07960 996 233.

PX:  Public and Private sector pay 2013 comparison report

Median hourly pay gap between public and private sector, by region (January-March 2013)