The public sector workforce has seen a strong boost in expected pay awards, surpassing the private sector for the first time since 2020, according to the latest Labour Market Outlook report from the CIPD.
Public sector pay awards have increased from 2.5 percent to 4 percent in one quarter, with projections for the next three months reaching 5 percent. Private sector pay awards are expected to remain at 3 percent, both in the near term and over the next year.
In response to these changes, the CIPD is urging the Government to establish a strategy for sustainable pay growth across sectors by working with employers for productivity and innovation.
Employment Intentions and Confidence in the Public Sector
James Cockett, senior labour market economist at the CIPD, the professional body for HR and people development, 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.”
Private Sector Pay Expectations Remain Static
In contrast, anticipated private sector pay increases have plateaued and could face further downward pressure. Cockett points to increased employer National Insurance contributions and the rise in the National Minimum Wage announced in the Budget as likely dampening factors. These costs may prompt businesses to offer lower pay rises, limit investment in workforce skills, and adopt a cautious approach to new hiring.
“Raising productivity will be key,” Cockett said. “It’s crucial the Government sets 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.”
The quarterly CIPD survey, which covers over 2,000 employers, reports that difficulties in filling key roles continue across industries. Around 36 percent of employers currently report hard-to-fill vacancies. This trend is more pronounced in the public sector, where 42 percent of employers struggle to recruit for essential roles, compared to 34 percent in the private sector. This challenge is particularly acute in care, social work, and healthcare (outside of hospitals, GPs, and dental settings), with a net employment score of +47, followed by construction at +43.
Budget Implications for Inclusive Recruitment and SME Growth
The survey also explored employers’ plans to improve inclusive hiring by recruiting from under-represented groups, including older workers, parents returning to work, and individuals with disabilities or long-term health conditions. These efforts vary significantly between sectors and business sizes.
Private sector SMEs appear less likely to plan inclusive hiring. Twenty-one percent of SMEs report no plans to recruit from underrepresented groups over the next three years, a notable difference from just 4 percent of large private sector and public sector employers. For candidates with disabilities or long-term health conditions, only 13 percent of private SMEs plan to recruit from this group in the next three years. By comparison, 42 percent of large private sector employers and 43 percent of public sector employers plan to do so, despite individuals with disabilities making up a quarter of the working-age population.
Similarly, only 22 percent of private sector SMEs intend to hire parents returning to work within the next three years, which is approximately half the rate of large private and public sector organisations, with 46 percent and 45 percent respectively indicating plans to hire from this group.
Ben Willmott, head of public policy at the CIPD, said, “Measures from the Budget and the Government’s Plan to Make Work Pay stand to have a significant impact on employers’ growth and hiring plans and could risk undermining efforts to improve labour market participation. Our data shows it will be particularly important for Government to consider how to provide enhanced support to SMEs, many of which are already hesitant about hiring people from disadvantaged groups.”
