New research from nef reveals the full extent of public sector’s low pay problem. The calculations reveal that:

  • Public services employ one million low wage workers: this number is double previous estimates which did not account for workers in outsourced services.
  • Local authorities directly employ roughly the same proportion of low wage workers as the private sector: 1 in 4 local authority workers are on low pay, compared to 27% of all private sector workers.
  • Outsourcing is driving down wages: Half of low paid public service workers are in outsourced services, at even greater risk of worsening pay and conditions.
  • Tackle falling real pay in the public sector to boost the economy:Ending the public sector pay freeze, and paying all public service employees the living wage would have real economic benefits.

Raising the Benchmark, a report published today by nef, finds the extent of low pay in the public sector is twice as high as previously thought. The Office of National Statistics estimates that one in five of Britain’s workforce are on low pay (less than £7.47 per hour).

nef estimates that one million public service workers are on low pay, with a quarter of local government employees earning below the living wage. The research shows part time employees and female workers are disproportionately affected, including lollipop men, dinner ladies, and health and social care workers.

UK has a low pay problem

Rising costs of living have seen the value of pay packets plummet by an average of £1,300 per year since 2010.The added economic costs of low pay – billions of pounds in income support and tax credits alone – mean tackling it is a priority.

Public sector workers will not feel benefits of recovery

The report finds that public sector pay freezes and the rising costs of living mean that public sector employees are on average £2,000 worse off than in 2010. Part-time hourly earnings in the sector are worth the same as ten years ago.

The public sector is outsourcing low pay

The research reveals that 500,000 low wage workers are now employed by public service outsourcing companies.  As squeezed local authorities award contracts to the cheapest providers, these workers are often even worse off than their counterparts employed directly by the public sector. A care worker earns only £6.44-£7.38 per hour in the private sector compared to £9-£11 in the public sector.

Boosting public sector pay is good for the economy

nef argues that paying all public sector workers at least the living wage would boost the economy and benefit the Treasury through savings in tax credits and income support. Combined with a decision to remove the pay cap and measures to spread collective bargaining and decent pay through the public sector supply chain it could also play a key part in promoting fairer pay in the wider labour market. The IMF has estimated that public spending, including on employees’ wages, has a strong positive impact on the wider economy through the multiplier effect – £1.60 for every £1 spent.

Helen Kersley, Senior Economist at nef said“Britain has a low pay problem. Our research finds low wages are having negative effects on the whole economy, and the public sector is doing less than it should be to raise standards of living.

“Up to now, it was assumed low pay was confined to the margins of the public sector. But take into account the 500,000 low wage workers employed by outsourced service providers and you can see the problem runs a lot deeper than that. As local authorities struggle to cut costs, they’re leading a race to bottom  –  commissioning providers that pay workers less than they need to live on. These workers don’t appear on the books, but our key services depend on them; they have to be part of the equation.

“Raising pay at the bottom end of the scale is key to stabilising our economy and improving our public finances. This research shows that public sector has a big role to play in tackling the cost of living crisis, and paying the living wage across the board is a good place to start.”

Karen Jennings, Assistant General Secretary at Unison said: “The stereotype of overpaid public sector workers is not only damaging, but completely backward. Wages are being benchmarked against those in the worst parts of the private sector, rather than the other way round.

“Historically, the public sector was a key driver of progressive employment practise. It led the way on gender equality in the workplace and was the first to introduce pay resolutions and collective bargaining. Instead of bowing down to harmful criticism, the public sector needs to start proving that society benefits from decent wages.”