By Alex Bryson in The Conversation.
Debate over whether or not public sector pay should be capped at 1% is raging in the UK. First Theresa May, the prime minister, indicated she might ditch the cap that has been in place since 2010. She quickly backtracked on the idea but remains dogged by pressure from her backbench MPs to rethink the austerity policies that they feel led to the poor election result.
Meanwhile high-profile cabinet ministers, including Boris Johnson and Michael Gove, have said they think the cap should be lifted. Clearly politics is at play.
From an economic standpoint there is the issue of how sustainable a long-term cap of 1% (below inflation) is on pay settlements. Pay restraint is a reason why the government struggles to recruit and retain high-quality staff to deliver health services, education and other public services.
We recently wrote a report for the Office of Manpower Economics, the body supporting the government’s independent Pay Review Bodies (PRBs) which advise on the pay of 2.5m public sector workers (about half of all public sector workers), detailing some of the recent trends. There are four key findings:
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