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Public sector pay failing to keep up with cost of living

Public sector employee wages are failing to keep up with the cost of living because of the requirement on employers to pay for the apprenticeship levy and national living wage, the Chartered Institute of Personnel and Development (CIPD) has said.

CIPD’s latest Labour Market Outlook Survey found that median basic pay expectations in March 2016-17 are 1.7%, below the government’s 2% inflation target, meaning wage increases are not keeping up with the cost of living.

It is particularly bad among larger employers and the public sector, both of which are facing a pay increase of just 1%, compared to 2% for smaller employers and the private sector. Last year, the Institute for Fiscal Studies warned that the government’s plan to cap public sector pay increases at 1% for four years from 2016-17 could make it “harder to recruit and retain” quality workers.

Pay freezes in spring 2016 were also expected by 12% of public sector employers, compared to 8% of private sector employers and 10% of voluntary sector employers.

The figures come despite a continued increase in jobs, with the net employment balance, which measures the difference between the proportion of employers who expect to increase and those that intend to decrease staff levels, increasing to +28, up from the +21 since the previous report.

CIPD warned that public sector employers were likely to be feeling the impact of new costs such as the National Living Wage, the apprenticeship levy and pensions auto-enrolment, as well as facing continuing productivity difficulties.

Mark Beatson, CIPD chief economist, said: “It’s not good enough for the government to make these changes and say ‘over to you’. The government needs to provide greater support and employers are going to have to be more and more creative in how they manage reward and motivate employees.”

He warned that otherwise, employers would take “easier options” to compensate for the loss of income, such as reducing hours, benefits and the next round of pay increases.

He called for the government to more actively intervene with employers to help them increase productivity.

The Strategic Development Network warned recently that the apprenticeship levy is a ‘step in the dark’ for many councils, who are unprepared for the costs.

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