The cap no longer fits – but has the squeeze been eased?

Published on Wages & Income

One of the main talking points as people digested the shock election result in June was whether years of pay restraint had finally taken its toll on public sector workers, who were making their feelings known at the ballot box. The fate of the pay cap was sealed a few hours after the polling stations closed.

Today, 96 days later, the government has confirmed the lifting of the cap. This is welcome news for millions of public sector workers.

Yet while the political pressure to end the cap started on 9 June 2017, the economic pressure has been building for years.

Since 2010 pay rises have consistently failed to keep up with the rising cost of living. A period of ultra-low inflation provided brief respite in 2015 but the four-year 1 per cent cap on pay rises announced that same year ensured that the public sector pay squeeze would continue through to 2020. This made the 2010s a truly terrible decade for public sector pay – with average wages forecast to fall by £1,350 over the course of the decade.

Of course, the pay squeeze was hardly unique to public sector workers – Britain is on course to experience the worst decade for pay in over two centuries – but it has been longer and deeper than in the private sector. Crucially, this part of the pay squeeze has always been something that, if it so wished, the government could do something about.

Lifting the cap is big news. Millions of public sector workers will enjoy higher pay rises in the coming years because of this decision, with police and prison officers being the first to benefit. Police officers will receive a 2 per cent pay rise in 2017-18 (half in the form of a one-off bonus). Prison officers will get a 1.7 per cent pay rise too.

But while today’s announcement is good news, far bigger tests lie in the coming weeks and months.

First, police and prison officers will still be experiencing falls in their pay this year once we account for inflation, which is currently running at 2.7 per cent. For example, a prison officer on £19,000 this will still see their basic real pay fall by around £100.

Second, it only applies to around one in twenty public sector workers. We don’t know how the cap will end for almost all of the public sector.

As well as responding to other pay review bodies, the government will need to announce how it will replace the current policy from 2018-19 onwards (today’s announcement was a backdated pay rise for 2017-18). For that we will have to wait until the Budget on 22 November. So attention now turns to the Chancellor to see how much new money will be available.

Unfortunately for him, public sector workers aren’t the only people who feel they deserve some fiscal slack. The latest inflation figures will have also reminded millions of low and middle income families that their frozen tax credits aren’t stretching as far in the supermarket.

Today marked an important milestone in a change of approach to public sector pay. But the big decisions – and big money – on public sector pay will really get going in the Autumn.