Market facing pay for nurses, teachers and civil servants is on course for 2013 and could result in many facing a prolonged pay freeze as they wait for private sector pay to catch up.

The independent pay review bodies who advise on pay for NHS workers, schoolteachers, and operational staff in public sector prisons, together with central government departments, have been asked to make pay reflect private sector pay levels. The pay review bodies have to report by July 2012. This will then allow market facing pay to be introduced in 2013.

The Government argues that differentials between public and private sector wages vary considerably between local labour markets and this has the potential to hurt private sector businesses that need to compete with higher public sector wages. It leads to unfair variations in public sector service quality and reduces the number of jobs that the public sector can support for any given level of expenditure. The Government’s case is based on research by the Institute of Fiscal Studies, which shows that public sector staff are paid 10% more than their private counterparts in some parts of the country.

The impact of market facing pay for a substantial number of public service workers in low wage areas of the country will be a prolonged period of mark time pay which is currently frozen. The two year pay freeze will end in 2013, but will be followed by a 1 percent cap on any increase. But in low wage areas the cap will have no effect because pay levels will be deflated.

The preferred options for market facing pay are zonal pay or the introduction of additional payment ‘hotspots’. The Department for Health currently uses data on private sector geographical variation in pay across the country to inform the financial allocations received by NHS commissioners and also the tariff payments to providers. This Staff Market Forces Factor data could also be used across the public sector to determine pay levels.