Headlines: August 20th, 2009

The pay bill is a significant part of public sector budgets and a halt in annual rises would reduce pressure to cut jobs. The latest Labour Market Outlook survey from the Chartered Institute of Personnel and Development and KPMG shows that public sector pay is starting to freeze.

The survey finds that 1 in 5 public sector employers have frozen pay awards for the time being, identical to the proportion of private sector employers currently freezing staff pay. A further 6 per cent of public sector employers are deferring pay decisions until later in the year, only slightly fewer than the 10 per cent of private sector employers making deferrals.

Looking forward to the next 12 months, employers on balance expect pay increases in 2010 to be lower than this year. The recent inflation figures show that inflation is currently at -1.4% on the Retail Prices Index measure which is that most commonly used as a ‘cost of living’ benchmark in pay settlements. This confirmation that inflation remains in negative territory will effectively mean a rise in workers’ real living standards even if they are subject to a pay freeze.

Alan Downey, Partner and Head of Public Sector at KPMG, says: “Up to now, the private sector has borne the brunt of the recession, but financial pressure is starting to build in the public sector. Salaries represent a sizeable proportion of total public expenditure, and it is not surprising that employers are starting to squeeze the pay bill. While public servants may not welcome this move, the good news is that it should reduce the number of job losses that will be required.”