PCS submission to HM Treasury on the 2017 Civil Service Pay Remit
Introduction
The Public and Commercial Services union (PCS) is the largest trade union in the civil
service, representing 160,000 civil servants. The union is recognised for the purposes
of collective bargaining on pay and related matters, for civil servants covered by the
Treasury Pay Remit, employed in government departments, agencies and NDPBs.
Executive Summary
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In the period 2010 to 2016, where public sector pay increases have been capped
at 1%, the value of average earnings in the civil service has fallen by comparison
with (Consumer Price Index) inflation by between 8 and 9%.
The value of average earnings in the civil service has fallen further than the value
of average earnings in the rest of the public sector (3-4%, CPI), and in the
economy as a whole (7-8%, CPI).
If the pay cap continues until 2020, average civil service pay will have fallen in
value by between 12% if the Consumer Price Index (CPI) is used to measure
inflation and 20.4% if the Retail Price Index (RPI) is used to measure inflation.
Our submission is to the Treasury is that the 1% pay cap should be lifted and
that the 2017 Pay Remit should enable civil service employers to start the
process of restoring the value of pay, by enabling them to negotiate increases
civil service pay above the rate of inflation.
Introduction
Since 2010 earnings in the civil service have fallen in value. Research published by PCS
(attached at appendix A) shows that in the period 2010 to 2016, the value of earnings
in the civil service has fallen. It has fallen further than the value of pay in the rest of the
public sector, and in the economy as a whole. Inflation and average earnings are
predicted by the Office of Budget responsibility to rise over the next three years. Under
Government public sector pay policy, civil service pay increases will remain capped at
1%. This means that if the cap remains in place, civil service earnings will fall further in
value behind inflation, and wages in the rest of the economy.
In July 2016, in her first statement, the Prime Minister, Theresa May said, “If you’re from
an ordinary working class family, life is much harder than many people at Westminster
realise. You have a job but you don’t always have job security. You have a home but
you worry about paying the mortgage. You can just about manage, but you worry
about the cost of living and getting your kids into a good school. If you are one of
those families, if you are just managing I want to address you directly”.
Civil servants, the government’s own workforce, are suffering from the cumulative
effect of years of pay restraint and cuts to take home pay. Our members report that
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PCS submission to HM Treasury on the 2017 Civil Service Pay Remit
they face threats to their homes, visiting food banks and facing agonising choices
between paying bills and putting food on the table. The civil service people survey
shows that satisfaction with pay and conditions has fallen since 2009 and now stands
at just 31%. The Prime Minister has pledged this government to help the “just
managing”. By any definition many civil servants fall into this demographic.
Our submission is to the Treasury is that the 1% pay cap should be lifted and that the
2017 Pay Remit should enable civil service employers to start the process of restoring
the value of pay, by enabling them to negotiate increases civil service pay above the
rate of inflation.
PCS pay research 2017
Our submission is supported by work undertaken by Dr Mark Williams of Surrey
University (attached at appendix A). The research uses data from the Annual Survey
of Hours and Earnings (ASHE). It shows that, by comparison with the Consumer Price
Index (CPI), the government’s preferred estimate of price inflation, real median
earnings have fallen over the last 5-7 years. In the private sector this has been by 78% and the in public sector by 3-4%. However, there has been a steeper decline in the
civil service with real median earnings decrease of around 8-9%.
This is a significant finding as it demonstrates that public sector pay policy has not
been evenly applied across the public sector. Its application by Treasury on civil
servants, through the Treasury remit, has had the effect of suppressing pay increases.
A finding from the analysis of ASHE data is that the change in real earnings for “local
government administrative” is about a quarter of the change in the civil service. This
is noteworthy, as “local government administrative” are perhaps the closest to civil
service administrative staff in terms of their tasks and responsibilities.
The research goes on to analyse data from the Annual Civil Service Employment Survey
(ACSES). Data on median earnings shows a lower fall in the value of civil service
earnings, of 1.5% if CPI is used, and 6.3% if RPI is used. However, a key finding of the
research report is that the change in the composition of the civil service workforce has
obscured the true magnitude of cuts to real earnings, the fall in the value of earnings
is much greater.
Since 2010 120,000 jobs have been cut from the civil service workforce. These cuts
have been predominantly at lower grades have changed the composition of the Civil
Service. Our research adjusts median earnings to take into account the compositional
changes to the civil service workforce.
Once adjusted to take into account the changes in composition, our research shows
that the fall in real median earnings since 2010 is 8.1% using the CPI (£2,077) and 13.5%
lower using the RPI (£3,639). This data confirms the picture from the ASHE survey that
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PCS submission to HM Treasury on the 2017 Civil Service Pay Remit
the real value of median civil service earnings have fallen significantly, and confirms
the findings that the scale of the fall is greater than that for the rest of the public sector
and for the economy as a whole.
Inflation and earnings projections
The Office of Budget Responsibility (OBR) has projected that during the 3 years 2017
to 2019, CPI inflation will rise by 6.9% (RPI will rise by 9.9%)1. The government has
announced that the 1% cap on public sector pay increases will continue until 2019/20.
With pay increases capped at 1%, this means that over this 3 year period earnings will
rise by 3%. With CPI inflation predicted to rise by 6.9% and RPI inflation at 9.9%, this
means that the real value of public sector earnings will continue to fall. Predicted
increases in inflation will mean that real median public sector earnings will fall a further
3.9% behind consumer price inflation (6.9% behind RPI inflation).
Taking into account the falls in the real value of median pay between 2010 and 2016,
and the projections for inflation to 2019, in a decade, the effects of the government
pay policy on the real value of median earnings in the civil service can be estimated to
have fallen in value by 12% (£3,089) using the CPI inflation measure, and by 20.4%
(£5,519) using RPI inflation.
The OBR projects that in the three years 2017 to 2019 average earnings in the whole
economy will increase by 8.5%. In the period to 2016, the real value of median pay in
the private sector earnings had fallen by 7 to 8%. The average earnings projection for
the period 2017 to 2019 suggests that the real value of private sector earnings will
increase by 2.6% (using the CPI measure of inflation). Although RPI inflation is
projected to rise more quickly than average earnings (by 1.4%). Over the 3 years to
2019, average earnings are projected to rise by 8.5%, during this period it is likely that
public sector pay will rise by only 3%. This means that public sector pay, including the
pay of civil service will fall behind private sector comparators.
Pension contributions
Since 2010 members of the civil service pension schemes have seen significant changes
to benefits and retirement age. They have also seen the introduction of increased
contribution rates. The largest group of pension scheme members were in the Classic
scheme. This group have seen their pension contributions increase from 1.5% of salary
to higher rates linked to income:
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1
For those with pensionable earnings of £21,210 or less, contributions rise to
4.6%.
For those with pensionable earnings of between £21,211 and £48,471,
contributions rise to 5.45%.
Office of Budget Responsibility, Fiscal and Economic Outlook, November 2016, Table 3.7, page 93.
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PCS submission to HM Treasury on the 2017 Civil Service Pay Remit
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Contribution rates rise to 8.05% for those with higher pensionable earnings.
Pension contributions are subject to tax relief. However, for a civil servant on average
salary, who pay tax at the basic rate, increased pension contributions will have reduced
take home pay by around £1,000 a year.
“Just Managing”
The Resolution Foundation report “Hanging on; the stresses and strains of Britain’s just
managing families”, makes a detailed attempt to define the “just managing”. They
identify Low to Middle Income (LMIs) households as the “just managing”. These are
defined as comprising those in the bottom half of the income distribution who are
above the bottom ten percent and who receive less than one fifth of their income from
means tested benefits. Nearly four fifths of these individuals earn less than £21,000.
While it is difficult to apply this definition to civil servants using available datasets, the
2016 median earnings of 140,000 administrative officers and assistants, who work
outside London is £19,5762.
The resolution Foundation describes LMIs as those who “despite income tax cuts and
rising employment, typical incomes in the group have only just returned to prefinancial crisis levels and have only just surpassed their 2004-5 level.” It is clear from
the PCS research that civil service earnings have fallen significantly in value, and are
continuing to fall in value.
Conclusion
This data and analysis presents a compelling argument that civil service pay has fallen
behind average earnings and public sector earnings. Inflation and average earnings
are projected to rise more quickly than the pay 1% cap, which will mean that the value
of civil service pay will continue fall for the rest of this parliament.
Based on our pay research, the projections of inflation and average earnings, our
submission is to the Treasury is that the 1% pay cap should be lifted. The 2017 Pay
Remit should enable civil service employers to start the process of restoring the value
of pay, by enabling them to negotiate increases civil service pay above the rate of
inflation.
2
Office for National Statistics, Annual Civil Service Employment Survey, 2016; release 6 October 2016.
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PCS submission to HM Treasury on the 2017 Civil Service Pay Remit