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‘It will be much harder to keep public sector wages down’ as economy recovers – IFS

The next government will find it much harder to keep public sector pay down, especially if there is a boost in private sector wages, the Institute for Fiscal Studies (IFS) has stated. 

Public sector pay freezes and below-inflation rises have been a central plank of the Coalition’s deficit-reduction strategy, but the next government could struggle to replicate this. 

Speaking to BBC Radio 4’s Today programme, Paul Johnson, director at the IFS, said: “Private sector wages have been very weak, which has made it relatively easy to keep public sector wages down. If private sector wages start to grow, as we hope they will, it will be much harder to keep public sector wages down.” 

His comments come after the chancellor, George Osborne, unveiled plans in his Autumn Statement that could see British public spending, as a percentage of GDP, fall to its lowest level since the 1930s. 

During his statement, Osborne vowed to continue reducing departmental spending in the first two years of the next Parliament, which would mean at least £15bn off Whitehall budgets. 

With regards to pay, he said: “Our control of public sector pay these past four years has delivered £12bn of savings. By continuing to restrain public sector pay we expect to deliver commensurate savings in the next Parliament until we have dealt with the deficit.” 

However, Johnson added that private sector wage growth would make it much harder to cut public spending again over the next five years. 

“Even if it has not been too difficult over this period, that doesn’t mean it won’t be difficult over the next period,” he said. “Apart from anything else, they have done the relatively easier things first. And, of course, we’ve actually had a relatively easy environment for doing it.” 

Earlier this year an IFS report revealed that since 2010 public sector pay has been held back such that the gap that opened up during the financial crisis has been closed. 

It also highlighted that while the public private pay gap is now back at pre-crisis levels, forecasts from the Office for Budget Responsibility (OBR) imply public sector pay will continue to grow less quickly than private sector pay over the next Parliament. 

“This has the potential to create problems in recruiting and retaining staff of appropriate quality,” said the IFS. “At the same time the spending plans set out in the Budget imply substantial further cuts in public sector employment.” 

In response to the chancellor’s statement, the OBR has estimated that a million more public sector jobs will be lost during the next Parliament

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