Employer plans for pay awards in the public sector have overtaken those in the private sector for the first time since Autumn 2020.
Previously, the public sector had the lowest median expected pay awards at 2.5 percent, but in just one quarter this has changed and it now has the highest at 4 percent, according to the CIPD’s Labour Market Outlook (LMO).
The LMO found that even higher awards of 5 percent could be expected in the sector in the next three months.
Private sector plateau
In contrast, employees in the private sector can expect to see pay deals plateau as tax rises unveiled in the budget last month ramp up employer costs.
Pay awards overall and in the private sector are expected to be 3 percent over the next quarter and for the next year.
In a bid to encourage sustainable pay growth, the CIPD urged the government to set out how it plans to work in partnership with employers to boost innovation and productivity across the economy via its forthcoming industrial strategy.
Post-election bounce
The LMO net employment balance also showed the public sector’s post-election bounce back.
The net balance is an index that measures the difference between employers expecting to increase staff numbers in the next three months and employers expecting to cut jobs.
It showed that the public sector net employment balance rose from -1 to +6, while the overall net employment balance increased from +18 to +21.
James Cockett, senior labour market economist at the CIPD, said: “Significant public sector pay awards announced since the election, along with the additional public sector spending announced in the recent budget, have provided a welcome boost to public sector employers and workers.
“This should help support the NHS and the delivery of other key public services in the shorter-term. However, improvements to people management capability and technology adoption will be needed to raise efficiency in the public sector to respond to rising demands on services and spending constraints over the longer-term.
“In contrast to the public sector, anticipated private sector pay awards have plateaued and are likely to face downward pressure following the increase to employer national insurance contributions and to the national minimum wage (NMW) announced in the budget.”
Budget employer costs
In her Autumn budget chancellor Rachel Reeves announced that employer national insurance contributions will increase from 13.8 percent to 15 percent from April 2025. The government will also reduce the secondary threshold (the level at which employers start paying national insurance on each employee’s salary) from £9,100 pounds a year to £5,000 pounds.
National Living Wage (NLW) rises, revealed the day before the budget, will increase from £11.44 to £12.21 an hour from 1 April 2025. This means pay will increase by 6.7 percent for around 3 million workers aged 21 and over.
Younger workers will also see their hourly pay increase as NMW for 18 to 20-year-olds will rise from £8.60 to £10.00 an hour.
Cockett said: “These increased business costs are likely to act as a barrier to growth and could lead to employers offering lower pay rises, being more cautious about investing in workers’ skills or taking on new staff.
“Raising productivity will be key. It’s crucial the government sets out how it is planning to work with employers to improve productivity, wages and living standards across the economy through its forthcoming industrial strategy and through changes to key areas of policy such as skills, innovation and business support.”
Shortly after the budget, Reeves admitted that the rise in employer NI “is likely to mean that wage increases might be slightly less”.
The Office for Budget Responsibility forecasts that 76 percent of the increase in employer NI will be passed onto employees via reduced pay rises and increased prices by 2026/27.
The quarterly LMO data is based on a survey of more than 2,000 employers who are asked about their hiring, pay and redundancy intentions.
