The Triple Dividend of an Above-Inflation Boost to UK Public Sector Pay

In recent developments, the new Chancellor has hinted at the possibility of a pay rise for public sector workers. Some might say this is long overdue, others suggest it’s wasteful at a time when fiscal prudence is needed, and yet more urge us to focus on productivity gains from technology. So who is right??

With inflation thankfully hovering around 2%, the independent public sector pay review body has recommended c.5% increase. This recommendation comes after years of pay freezes and stagnation, leading to huge recruitment issues and capacity gaps in many parts of our public sector. Here’s why an above-inflation increase in public sector pay yields a triple dividend for the UK.

1. Enhancing Talent Attraction and Vital Public Services

The first and most immediate benefit of a meaningful pay rise is its potential to attract and retain talent in the public sector. For years, public sector roles have struggled to compete with private sector salaries, leading to recruitment challenges and high turnover rates. The gaps have been filled by interims and consultants. Addressing capacity through consultancy is wrong, as we add value in many ways but body-shopping is not one. An above-inflation pay rise will help make public sector jobs more attractive, ensuring that critical services are staffed by skilled, motivated professionals. Career pathways, training and positive work environment also require investment, so the cost runs a little beyond wages, but many of these changes don't require cash per se, just a race to the top in management and HR policies already in the sector. ?

I'm convinced that Improved talent attraction translates directly into the quality of our public services. Our schools, hospitals, police forces, and local councils all rely on dedicated professionals. By ensuring these roles are financially competitive, we bolster the capability and resilience of our public services, which in turn supports the well-being and development of our communities.

2. Driving Economic Growth

The second dividend is economic growth. Public sector workers are the backbone of many essential and so called non-essential services that drive long-term economic prosperity. Teachers obviously play a critical role in educating the future workforce, healthcare professionals and care workers ensure a healthy, happy and productive population, police and emergency services keep our communities safe and desirable, and infrastructure workers maintain the essential systems that support daily life and business operations.?It’s a travesty that we missed an opportunity to revalue our care worker pay after the pandemic when it became crystal clear how poorly they were paid relative to their impact.?

Plus if the sector is going to unleash innovation and large-scale developments it needs capable teams to work with business in a partnership of equals. Anything less just won’t result in the step change that’s needed in every region and envisaged in the Devolution model emerging from this government.?Even the most staunch, market-led thinkers reading this must by now realise that a strong public sector is an enabler for our countries entrepreneurs.

Investing in public sector pay is an investment in these foundational aspects of our society. all contributing to a stronger, more resilient economy.

3. Amplifying the Local Economic Multiplier Effect

The third dividend is perhaps the most immediate: the local economic multiplier effect. Public sector workers typically reside in the communities they serve, and an increase in their pay directly boosts local economies. Higher disposable incomes mean more spending in local shops, restaurants, and services, which in turn supports small businesses and stimulates local economic activity. It’s sad to say, but a boost to low paid workers particularly passes straight through to local economies because they just don’t have the means to squirrel it away into savings.?

This local spending ripple effect can lead to job creation and more vibrant, resilient communities. As public sector workers spend their earnings locally, they help to regenerate economic activity, fostering a positive cycle of growth and investment in their communities.

Pay Investment that feed Modernisation and Reform

I’m certainly not saying here that boosting public sector pay should not come instead of other vital investments in our local services. Modernisation efforts, particularly AI and digital services, remain crucial for improving the quality and productivity of public services. They will vastly reduce many administrative tasks and save money.

Moreover, this pay rise does not negate the need for comprehensive reform in how we deliver public services. Shifting from reactive crisis management to proactive, preventative models is essential for long-term sustainability. The ability to do this deep reform requires space to think, space to learn and experiment. Better funded, skilled workers are necessary for radical reform.?

In short: A better public sector pay deal seems to be a vital component of the UK’s regenerative, mission-led agenda

Public sector pay is a critical element of the UK’s broader renewal agenda. An above-inflation pay rise for public sector workers offers a triple dividend: enhancing talent attraction and service quality, driving economic growth, and amplifying local economic activity. I believe it is a strategic investment to lay the foundation for a stronger, more resilient public sector, capable of meeting the challenges of the future while supporting vibrant, thriving communities today.

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