7OCT

UK public pay up 6.3%, private 2.9%

2 min read

12:52UTC

Public-sector regular pay grew 6.3% in May to July and private-sector pay 2.9%, below August's 3.1% inflation, as payrolls fell 145,000.

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EconomicDeveloping

Key takeaway

Public pay is rising at more than twice the private rate as payrolls shrink.

The Office for National Statistics (ONS) reported on 15 September that private-sector regular pay grew 2.9% in May to July, against 6.3% in the public sector⁠¹. Consumer price inflation for August came in at 3.1%⁠². The pay figure covers an earlier period, so setting the two side by side is Lowdown's comparison, not an ONS real-pay series; on that comparison, private pay trails prices.

Payrolls fell 145,000 on the year to 30.2 million, with wholesale and retail down 76,000. There were 2.5 unemployed people for every vacancy, up from 2.3 a year earlier, with vacancies averaging 702,000 in June to August.

Deep Analysis

In plain English

Pay rose at different speeds. The Office for National Statistics says private-sector workers got 2.9% more in May to July compared with a year earlier. Public-sector workers, such as nurses and teachers, got 6.3% more. Prices rose 3.1% in the year to August. Setting those two figures side by side is Lowdown's own comparison, because the pay and price figures cover slightly different months. There are also fewer employees on company payrolls than a year ago: 145,000 fewer, 30.2 million in all.

Deep Analysis

Root Causes

Public pay is set by review bodies on a separate annual cycle, so rises of 6.3% reflect past inflation, recruitment shortfalls and settlements agreed after the 2022-23 price rises. Private pay is set firm by firm, and firms facing weaker demand and higher employment costs settled lower.

The jobs data has a structural cause of its own: payrolls fell 145,000 on the year, with 76,000 of the fall in wholesale and retail, a sector that employs many people on low margins.

The pay and inflation figures cover different periods. The ONS pay series runs to July, inflation to August, so Lowdown's comparison of 2.9% against 3.1% is a rough guide rather than a real-pay measure.

What could happen next?

Consequence
A 6.3% public pay rise and 2.9% private pay growth shift the tax base toward the public payroll, which the Treasury funds from slower private receipts.
Risk
Falling payrolls in wholesale and retail lower income tax and national insurance receipts before the 28 October forecast.

Source Landscape

This story draws on neutral-leaning sources

Primary parallel: The Clegg Commission on pay comparability, set up in 1979, awarded public-sector rises to match earlier private-sector settlements and widened the public wage bill at a time of high inflation. The shared mechanism is public pay following a lagged private benchmark, so the bill arrives after the private economy has turned.

Counter-parallel: From 2010 the coalition government froze most public pay for two years, then capped rises at 1%, while private pay recovered faster. That produced a gap in the opposite direction, which then fed recruitment problems in teaching and nursing.

Immediate: 2.5 unemployed people per vacancy, up from 2.3 a year earlier, with vacancies averaging 702,000 in June to August. A rising ratio means less bargaining power for workers in the private sector.

Structural: public-sector pay at 6.3% is paid from a budget now £8.1bn over plan, so the Treasury faces the cost of the higher awards while receipts from private payrolls, which fund them through income tax and national insurance, are growing more slowly. Falling payrolls reduce receipts directly.

Consensus view: The ONS figures show a 3.4-point gap between 6.3% in the public sector and 2.9% in the private sector. When public awards outpace private settlements, the public sector gains recruitment strength while the Treasury carries the cost.

Counter-view: One counter-argument, offered here as analysis, is that employer Labour costs hold private settlements down, so the gap reflects Labour cost policy as much as productivity.

Key tension: Whether 76,000 fewer wholesale and retail payrolls signal a demand slump or firms trading hours and headcount for lower wage bills.

Sources:Office for National Statistics·Office for National Statistics

Mentions:Office for National Statistics →HM Treasury →United Kingdom →Clegg Commission →

First Reported In

Update #4 · £8.1bn over forecast, and the 30-year at 6%

Office for National Statistics· 7 Oct 2026

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Different Perspectives

Conservative Party

Leader Kemi Badenoch said Labour will run out of money and proposed lifting defence to 3% of GDP, paid for from welfare. Shadow work and pensions secretary Helen Whately put those savings at £23bn, "just the start".

Reform UK

Treasury spokesman Robert Jenrick pledged £80bn a year of spending cuts by the end of the next parliament and claimed £30bn a year of interest savings. The Spectator judged that the sums still do not fully add up.

Centre for Policy Studies

The right-of-centre think tank argued on 4 October that Britain is not a low-tax country once workplace pensions and student-loan repayments are counted. Its comparison rests on 2019 data.

Institute of Economic Affairs

The free-market think tank argued on 28 September that alcohol, tobacco and landfill duties raised £5.2bn less than the OBR projected. That comparison is separate from the five-month borrowing overshoot.

Resolution Foundation

The centre-left think tank said on 8 September that about £1 in every £12 of public spending now goes on debt interest. In July it put headroom against the fiscal rules at about £10bn.

Audit Scotland

It reported on 17 September that three Scottish budgets planned ScotWind drawdowns and drew nothing each time. It warned that using one-off receipts to balance annual budgets can weaken spending control.