Public sector pay: an end to the squeeze?

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As part of the 2018-19 Draft Budget, the Scottish Government announced an easing of its policy on public sector pay.  Starting in 2011-12, public sector workers had faced a two year pay freeze, followed by a 1% pay cap for the period to 2017‑18.  Initially, the proposal for 2018-19 was for a 3% increase for public sector workers earning £30,000 or less, a 2% pay increase for those earning £30,000 – £80,000 and a limit of £1,600 on any pay increase for those earning £80,000 or more.  However, during Stage 1 of the budget proceedings, the Scottish Government agreed to a revision to this policy.  The 3% increase will now apply to those earning £36,500 or less.  Around three quarters of public sector workers earn below £36,500.

Who is affected?

But, despite the name, the public sector pay policy does not directly affect all public sector workers in Scotland. In fact, the Scottish Government’s public sector pay policy only directly affects around 9% of those working in the public sector in Scotland – Scottish Government staff and those working in around 40 public bodies in Scotland.

For other groups within the public sector, the degree of influence of the Scottish Government varies. The public sector pay policy acts as a benchmark for pay negotiations, but is not automatically implemented.  For NHS staff, the Scottish Government takes advice from the NHS Pay Review Body, but can opt to adopt a different pay policy if it chooses.  At the other extreme, the Scottish Government has no direct influence over the pay of one of the largest groups of public sector employees – local government staff.

How much influence does the Scottish Government have on Public Sector pay

What is the cost of implementing the new policy?

The Scottish public sector paybill is around £15bn per year. SPICe estimates that the cost of implementing the revised public sector pay policy in 2018-19 is estimated to be around £400m, or around £250m more than it would have cost to continue with the 1% pay cap.  However, as noted above, there is no guarantee that all public sector groups – especially local government staff – will receive this pay rise.  They could receive either a more or less generous deal depending on the outcome of negotiations.  For example, recent pay deals for teachers and for firefighters have diverged from the Scottish Government pay policy.

How will the new pay policy be funded?

The Draft Budget states that it “provides for” a three per cent pay rise for staff earning up to £30,000, including NHS staff, police and teachers. This would suggest that the Draft Budget incorporated the costs of the original pay deal for those groups of staff where the Scottish Government exerts some influence over the pay deal.  But the Stage 1 budget proposals included a more generous pay settlement, which will add an estimated £40m to the costs of implementing the pay policy across the whole of the public sector.  It is unclear how these costs will be met.

For the NHS, the Scottish Government has indicated that it will rely on Barnett consequentials from the UK Government to help fund implementation of the pay deal. These consequentials are expected to result from the UK Government funding a pay increase for NHS England.

The position for local government is less clear. Many, including the Green Party and COSLA, had argued that the original local government settlement did not provide sufficient resources to allow for pay increases for local government staff.  As part of the Stage 1 budget proceedings, the Scottish Government allocated additional funding to local government, but did not make it clear whether this to allow for implementation of a more generous pay settlement for local government staff.  To add further to the confusion, the Scottish Government did provide additional funding to meet the additional costs of the teachers’ pay deal, an inconsistency that was highlighted by UNISON.

An end to the squeeze?

Inflation is currently running at around 3%, but is forecast to move downwards in 2018. This means that those getting the 3% pay award will see their pay keep pace with changes in prices.  However, those on higher pay are still likely to see their pay fall in real terms in 2018-19 as prices are expected to rise faster than their pay.  Also, some have argued that, even if pay keeps pace with prices in 2018-19, this will do little to address the erosion of the purchasing power of pay in the preceding years. The RCN claim that, in real terms, nurses’ pay has declined by 14% since 2010.


Nicola Hudson, Senior Researcher, Financial Scrutiny Unit, SPICe