The lifting of the Public Sector Pay Cap: Pros and Cons

There are strong suggestions that the London government is about to relax the public sector pay cap (which in most cases limited annual increases to no more than 1%). That cap has been in place since 2010.

This would be particularly welcomed amongst the 200,000 public sector workers in Northern Ireland [see Note 1 below]. Public sector employment represents 27% of the Northern Ireland total (compared to only 17% across the UK, on average).

Dr Esmond Birnie of the Ulster University Economic Policy Centre said,

“There are several reasons why removal of the cap could prove a mixed blessing. Higher public sector pay  have to be paid for out of the funding resources (the Northern Ireland spending block) which could otherwise have been used to pay  for public  services. In rough terms, each 1% increase in pay  represents a public expenditure cost of about £50m annually.”

Notwithstanding the so-called austerity years since 2010, and widespread disgruntlement about the cap, it remains the case that on average Northern Ireland public sector earnings are considerably higher- on average by about 35-40%- than private sector earnings. Even when comparison is made in terms of persons who have similar levels of qualifications there is still a gap.

The lifting of the pay cap also makes it more likely that the existing trend of reductions in public sector will continue and possibly even accelerate. The context to this is that Northern Ireland has yet to experience the extent of reductions in employment which have already occurred in GB. Current UK public sector employment is 15.3% less than its peak level in 2009 whereas here in Northern Ireland the reduction has been 10.3%.

  1. In March 2017, the most recent figure, 202,000 people were employed in the Northern Ireland public sector.