22OCT

UK public pay up 6.3%, private 2.9%

2 min read

16:23UTC

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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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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Causes and effects

This Event

UK public pay up 6.3%, private 2.9%

Public pay is growing at more than twice the private rate, which trails August inflation, while payrolls shrank by 145,000 on the year.

Led to

UK real pay up 0.6% as payrolls shrink

The October labour data narrowed the 145,000 payroll fall reported in September to 111,000.

Occurred 20 Oct 2026

Read story →

Different Perspectives

Pension Protection Fund

Acting chief actuary Aaron Pang put the rise to 135.0% funded down to liabilities falling 2.1% against a 1.0% fall in assets, reflecting higher gilt yields. On Lowdown's reading, the yields that lift the Treasury's interest bill leave 4,838 company schemes with a £280.7bn surplus that does not reduce state borrowing.

Torsten Bell

The Labour figure wrote on 14 October that the IMF's October figures show the fastest fiscal consolidation in the G7. The IMF forecasts the UK deficit falling from 3.8% of GDP in 2026 to 1.4% in 2031, a squeeze still to be delivered through taxes and spending.

Tax Justice UK

The left-leaning campaign group says ten tax reforms would raise over £60bn a year for public services, and on 22 October asked why higher taxes on extreme wealth remain politically difficult. It offers the tax-led exit to the IEA's cuts; the £60bn is its own claim, not an official costing.

Institute of Economic Affairs

The free-market think tank's Alternative Budget of 19 October would suspend the state pension triple lock for three years, freeze welfare in cash terms and move tax onto a wider VAT. It claims the day-to-day budget returns to surplus in 2027-28, its own projection rather than an official costing.

Resolution Foundation

The living-standards think tank said welfare spending ran about £2.5bn above expectations in September, City AM reported on 21 October, and its economist Greg Thwaites urged targeted energy support. Its figure lands as a Chancellor who calls welfare cuts a moral duty finalises the 28 October Budget.

Institute for Fiscal Studies

Director Helen Miller said a steady-as-she-goes Budget is not an option, with the IFS putting 2029-30 headroom at about £20bn, The Independent reported on 12 October. The IFS puts the cost of avoiding cuts and funding higher defence at around £35bn of tax rises or benefit cuts, more than any headroom estimate in circulation.

Written with AI from Lowdown's published reporting. Not individually reviewed by an editor. Editorial standards.