Evidence continues to show the taxpayer picks up too big a bill for the public sector payroll

May 09, 2011 5:40 PM

A study out today from Policy Exchange shows that public sector workers are better paid, and on average earn more for shorter hours. This study shows that the public sector 'premium' – the additional pay a typical public sector worker receives over a private sector worker – is now 35 per cent more calculated on hourly pay. Because those on salaries in the public sector tend to work shorter hours, for typical annual pay the premium is up to 16 per cent. Regular readers will know this is something we’ve blogged about for a number of years now, for example here, and our Public Sector and Town Hall Rich Lists have highlighted the huge growth of the number of executives on six-figure salaries and ludicrous pay hikes. Our Research Fellow Mike Denham has also written extensively on public sector pay on his blog.

While many workers in the private sector faced pay cuts in the recession, pay continued increasing in the public sector, ignoring the urgent and obvious need to better control costs. It’s totally at odds with the reality faced by the vast majority of private sector workers who can’t reach into that seemingly inexhaustible source of money – taxpayers’ pockets. It’s often said that public sector workers are more likely to be professional and have more qualifications, but that doesn’t explain this pay gap either.


[caption id="attachment_34435" align="aligncenter" width="448" caption="A tale of two wallets"][/caption]

 


The report also talks about other superior benefits enjoyed by public sector workers, such as shorter hours, more holidays and better pensions. On top of the stats bearing these facts out, I’m sure everyone can relate to this anecdotally. I know several people who have worked for councils and admit to counting down the hours until their lunch break and then again until 5pm. There isn’t a desire to go the extra mile, or the push to from management. What’s more, there is barely any threat of being fired if you don’t pull your weight. It’s not simply down to these individuals being lazy either; they had so much potential and did go on to be engaged and productive for less money in the private sector. Of course there are many thousands of hard-working and talented workers in the public sector, but although it pays generously pay isn’t the defining factor in employee engagement and so good value for taxpayers. All of this contributes to lower productivity across the public sector, which dropped 0.3 per cent between 1998 and 2007: a period of record hikes in public spending. During the same period productivity in the private sector went up 2.3 per cent. As we’ve said before on these pages, Governments too often confuse taxpayers’ cash – or what politicians call “investment” – with commitment. Improving things doesn’t mean chucking a load of money at them and hoping some of it sticks.

Another report out recently, from PricewaterhouseCoopers, on absenteeism is also worth looking at. It shows the number of days taken off varies greatly by country and between those working in the public and private sector. The report has some interesting figures and also some conclusions on what impacts on the level of sickness. In the UK the average worker takes 10 days off a year because of sickness, this is comparable with Europe but dramatically higher than Asia-Pacific at 4.5 days and the US at 5.5 days. PwC commented that in the US there are shorter holidays and longer hours which you might expect to impact on stress and sickness rates, in fact it seems that motivation engagement and desire to be at work are actually bigger factors.

Absenteeism is costing the British economy £32 billion per year. And this disproportionately hits the taxpayer. As in similar recent revelations on council staff sickness, PwC found the average absenteeism rate is brought up by public sector workers who average 12.2 days a year compared to the lowest rates in technology companies at 7.6 days.

As I commented at the time: “It’s scandalous that yet more research confirms public sector staff are pulling more “sickies” than those in the private sector. Of course employers should be sympathetic to genuine illnesses but there seems to be a different approach when taxpayers’ pockets are raided to foot the bill. These findings also suggest that a lack of commitment will lead to more absenteeism, which means taxpayers are getting a bad deal twice, both by funding extra days off and picking up the tab for disengaged staff.”

The conclusion of Policy Exchange’s report comes up with three solutions: local pay-bargaining and an end to national strike ballots; replace the two-year pay freeze on individual salaries with a freeze in the total pay bill for public sector organisations; reforming public sector pensions. We’ve said before that local pay-bargaining should come to an end. It’s very destructive and in some cases in the NHS it can actually put patients at risk. The two year pay freeze was something we recommended in our book How to Cut Public Spending, and was subsequently implemented by the Government. Freezing the overall pay bill would have much the same effect fiscally, though it might be harder to enforce politically. We’ve discussed how we would reform public sector pensions at length, and the scale of the problem is not recognised by official debt figures either, so the report is right to flag this up as a pressing issue.

Public sector bodies must find savings and pay is usually their biggest expense. Having implemented a two year pay freeze, the Government have to look at longer term solutions to ensure that well these pay ‘premiums’ do not get back out of control.A study out today from Policy Exchange shows that public sector workers are better paid, and on average earn more for shorter hours. This study shows that the public sector 'premium' – the additional pay a typical public sector worker receives over a private sector worker – is now 35 per cent more calculated on hourly pay. Because those on salaries in the public sector tend to work shorter hours, for typical annual pay the premium is up to 16 per cent. Regular readers will know this is something we’ve blogged about for a number of years now, for example here, and our Public Sector and Town Hall Rich Lists have highlighted the huge growth of the number of executives on six-figure salaries and ludicrous pay hikes. Our Research Fellow Mike Denham has also written extensively on public sector pay on his blog.

While many workers in the private sector faced pay cuts in the recession, pay continued increasing in the public sector, ignoring the urgent and obvious need to better control costs. It’s totally at odds with the reality faced by the vast majority of private sector workers who can’t reach into that seemingly inexhaustible source of money – taxpayers’ pockets. It’s often said that public sector workers are more likely to be professional and have more qualifications, but that doesn’t explain this pay gap either.


[caption id="attachment_34435" align="aligncenter" width="448" caption="A tale of two wallets"][/caption]

 


The report also talks about other superior benefits enjoyed by public sector workers, such as shorter hours, more holidays and better pensions. On top of the stats bearing these facts out, I’m sure everyone can relate to this anecdotally. I know several people who have worked for councils and admit to counting down the hours until their lunch break and then again until 5pm. There isn’t a desire to go the extra mile, or the push to from management. What’s more, there is barely any threat of being fired if you don’t pull your weight. It’s not simply down to these individuals being lazy either; they had so much potential and did go on to be engaged and productive for less money in the private sector. Of course there are many thousands of hard-working and talented workers in the public sector, but although it pays generously pay isn’t the defining factor in employee engagement and so good value for taxpayers. All of this contributes to lower productivity across the public sector, which dropped 0.3 per cent between 1998 and 2007: a period of record hikes in public spending. During the same period productivity in the private sector went up 2.3 per cent. As we’ve said before on these pages, Governments too often confuse taxpayers’ cash – or what politicians call “investment” – with commitment. Improving things doesn’t mean chucking a load of money at them and hoping some of it sticks.

Another report out recently, from PricewaterhouseCoopers, on absenteeism is also worth looking at. It shows the number of days taken off varies greatly by country and between those working in the public and private sector. The report has some interesting figures and also some conclusions on what impacts on the level of sickness. In the UK the average worker takes 10 days off a year because of sickness, this is comparable with Europe but dramatically higher than Asia-Pacific at 4.5 days and the US at 5.5 days. PwC commented that in the US there are shorter holidays and longer hours which you might expect to impact on stress and sickness rates, in fact it seems that motivation engagement and desire to be at work are actually bigger factors.

Absenteeism is costing the British economy £32 billion per year. And this disproportionately hits the taxpayer. As in similar recent revelations on council staff sickness, PwC found the average absenteeism rate is brought up by public sector workers who average 12.2 days a year compared to the lowest rates in technology companies at 7.6 days.

As I commented at the time: “It’s scandalous that yet more research confirms public sector staff are pulling more “sickies” than those in the private sector. Of course employers should be sympathetic to genuine illnesses but there seems to be a different approach when taxpayers’ pockets are raided to foot the bill. These findings also suggest that a lack of commitment will lead to more absenteeism, which means taxpayers are getting a bad deal twice, both by funding extra days off and picking up the tab for disengaged staff.”

The conclusion of Policy Exchange’s report comes up with three solutions: local pay-bargaining and an end to national strike ballots; replace the two-year pay freeze on individual salaries with a freeze in the total pay bill for public sector organisations; reforming public sector pensions. We’ve said before that local pay-bargaining should come to an end. It’s very destructive and in some cases in the NHS it can actually put patients at risk. The two year pay freeze was something we recommended in our book How to Cut Public Spending, and was subsequently implemented by the Government. Freezing the overall pay bill would have much the same effect fiscally, though it might be harder to enforce politically. We’ve discussed how we would reform public sector pensions at length, and the scale of the problem is not recognised by official debt figures either, so the report is right to flag this up as a pressing issue.

Public sector bodies must find savings and pay is usually their biggest expense. Having implemented a two year pay freeze, the Government have to look at longer term solutions to ensure that well these pay ‘premiums’ do not get back out of control.

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