Autumn statement: pay cap and further job losses for public sector

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The Chancellor of the Exchequer’s autumn statement has delivered some bleak news for the public sector, with higher job losses than previously forecast and confirmation that pay awards in the sector will be restrained to an average of 1% for each of the two years after the current pay freeze ends.

In the statement, Chancellor George Osborne said that the Government could not afford the 2% rise “assumed by government departments” once the current two-year pay freeze ends.

For most public sector workers the freeze on their pay will end during 2013, although for some it will end next spring.

Osborne stated that the policy would save more than £1 billion by 2014-15, and will go towards funding capital investments in infrastructure, regional growth and education as well as support for young people looking for work. In the NHS and schools, the money saved will go towards protecting those budgets.

He explained: “Many [in the public sector] are helped by pay progression – the annual increases in salary grades that many people are entitled to, even when pay is frozen.”

“It is one of the reasons why public sector pay has risen at twice the rate of private sector pay over the last four years. So, while I accept that a 1% average rise is tough, it is also fair to those who work to pay the taxes that will fund it.”

The public sector also faces a greater level of job cuts than previously predicted. In the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook, published alongside the autumn statement, the OBR revised its forecast for job cuts in the public sector upwards to 710,000 for the period from January 2011 to the first quarter of 2017.

This compares to the OBR’s previous prediction of a loss of 400,000 public sector jobs for the shorter period running from the first quarter of 2011 to the start of 2016.

Dr John Philpott, chief economic adviser to the Chartered Institute for Personnel and Development (CIPD) said that the OBR’s forecast has now moved into line with that made last year by the CIPD. However, he added that there was some good news, with the OBR concluding that there is little evidence of a permanent structural deterioration in the labour market.

Philpott commented: “It suggests that unemployment can fall quite rapidly once the economy returns to a strong rate of growth, which incidentally implicitly undermines the Chancellor’s argument that the UK needs a major dose of employment deregulation to stimulate job creation.

“The bad news, however, is that with economic growth remaining sluggish for some time to come, the OBR expects unemployment to remain above two million until the middle of the decade, which will put downward pressure on earnings growth across all sectors of the economy for several years to come.”

It was also announced that, as public sector pay is usually set on a national basis, the Government will commission an independent review into how public sector pay can be made responsive to local labour markets so that it better reflects conditions in the private sector. The results of this review are expected in July 2012.

On pensions, Osborne hit out at the unions involved in tomorrow’s planned widespread public sector strike action, calling the Government’s pensions offer “fair to both taxpayers and public servants”.

He added: “I would once again ask the unions why they are damaging our economy at a time like this – and putting jobs at risk. Call off the strikes tomorrow, come back to the table, complete negotiations – and let’s agree generous pensions that are affordable to the taxpayer.”

Unison, one of the largest public sector unions taking part in the strike action, have branded the autumn statement an “attack on public sector workers” and their families, and has claimed that it will put “the brakes” on economic growth.

David Prentis, Unison’s general secretary, commented: “Our recovery is as nonexistent as the Chancellor’s apparent understanding of economics. Growth has stalled and experts are predicting the double dip will hit.”

He added: “We desperately need to get Britain spending. A bad situation will only be made worse by imposing a £3.6 billion tax on public sector pensions, by holding down public sector pay, and by throwing hundreds of thousands of public service workers on the dole.”

However, Christopher Johnson, head of human capital at HR consulting, outsourcing and investment service Mercer, said that public sector employees should welcome the 1% pay rise.

“Easing the public sector pay freeze by capping pay increases at 1% should be welcomed by public sector employees,” Johnson said. “This increase, plus incremental progression, will ensure that public sector average earnings growth continues to outstrip private sector earnings growth.

“Our view is that it is right to restrain public sector pay. There is both an issue of affordability and an urgent case for pay reform.”

He added that the Government must address the fundamental long-term issues about how much public servants should be paid and how public sector pay can better encourage a culture of performance.

Among the other announcements, Osborne stated that the Government will increase the state pension age from 66 to 67 in 2026 in order to ensure that there is enough money to continue paying “a decent pension” to people who are living longer.

He also reiterated the previously announced plans for employment law reform, including calls for evidence on changes to the TUPE Regulations, reducing the consultation period for the collective redundancy process and the introduction of compensated no-fault dismissal for businesses with fewer than 10 employees.

More information on the Chancellor’s autumn statement is available on XpertHR.

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