Hammond is actually right: Public sector employees do get paid more than the rest of us



philip hammond


Philip
Hammond.

REUTERS/Bobby
Yip


LONDON — Chancellor Philip Hammond received some negative
publicity over the weekend when several of his
colleagues briefed the Sunday papers that he was refusing to
lift the 1% pay-rise cap for public sector workers because he
believes government employees are “overpaid.”

This is an unpopular thing to say given that police and
firefighters have recently put their lives on the line battling
terrorists and the Grenfell tower fire. Few would deny that NHS
workers and teachers ought to earn more money. And Britain has
been worn down by nearly 10 years of austerity economics.

And yet … Hammond has a point.

Public sector workers do tend to earn more, over a
lifetime, than their counterparts in the private sector.

Few will admit it, but this divide is one of the main causes of
inequality in Britain. The reason: public sector workers tend to
have generous “defined benefit” or “final salary” pension
schemes. In the private sector, those things have been phased
out,
following a change in the law back in 1986
. Even though some
public sector workers may be paid less right now, they’re paid
thousands more when they retire — money that private sector
workers will never see. (And, to rub it in, those public pensions
are generated with tax money paid by private sector workers.) As
Hammond told the Andrew
Marr show
, once you take into account pension wealth, public
sector workers do, on average, earn more than people in the
private sector.



Inequality in Britain

BI
Graphics

First, let’s look at what Hammond actually said and then we’ll go
through the numbers.


According to the Times
:

“At a heated cabinet meeting on Tuesday, the chancellor refused
to lift the 1% cap on wages for public-sector workers on the
grounds that they earn more than those in the private sector,
along with generous taxpayer-funded pensions.”

“But Hammond left his colleagues thunderstruck at the language he
used. ‘Public-sector workers are overpaid when you take into
account pensions,’ he declared. The chancellor then described
train drivers as ‘ludicrously overpaid’.”


He then told the BBC
:

“When you take into account the very generous contributions that
public-sector employers have to pay in for their workers’ very
generous pensions, they are still about 10% ahead.”

Public sector workers have had their pay rises limited to 1% per
year since 2011, following the 2008 financial crisis. After
inflation, that has cut the real value of their wages. The TUC published
some data
on that, noting, for instance, that some government
professionals have lost £4,000 or more from the buying value of
their salaries. That certainly sounds as if public sector workers
have made real sacrifices.

But all workers are affected by inflation, not just public sector
employees. So let’s look at actual pay. According to the ONS,
average weekly pay for UK workers in March 2017 breaks down like
this:

  • Public sector workers: £506 per week
  • Private sector workers: £464 per week

The BBC has a nice chart showing weekly wages over time:


PayBBC / ONS

The BBC’s page on this is worth reading if you want more context.
For instance, private sector
pay has been catching up to the public sector over time, and is
currently growing faster
.

Whether or not £506 per week counts as “overpaid” is a matter of
debate. But Hammond is right that public sector workers are paid
more than everyone else, on average.

And that is before you get to the pension issue.

Here is
how pensions break down
, according to the Department for Work
& Pensions.

  • Public: 92% enrolled in pensions (4.8 million
    of
    5.2 million
    workers in total)
  • Private: 73% enrolled in pensions (11.3
    million out of 15.5 million workers in total)
  • (Data current to 2016; there are currently
    5.4 million public sector workers
    .)

The distribution of wealth going into those pensions is skewed
heavily in favour of the public employees,
the DWP says
:

  • Increase in amount saved from 2015 to 2016:
  • Public sector: £1.8 billion (shared between 4.8 million
    people = £375 each)
  • Private sector: £2.0 billion (shared between 15.5 million
    people = £129 each)
  • Total saved, 2016: £87.1 billion

Of that £87.1 billion in pension wealth, public sector workers
get more than twice as much as private sector employees
(about £8,500 per employee compared to about £4,000 per
employee).


pensionsDWP

As Business
Insider’s series on Inequality in Britain
has argued, the
abolition of defined benefit pensions in the private sector (and
the retention of them in the public sector) has
stripped workers who joined the workforce after 1986 of about
£2.7 trillion in wealth
. Those people — millennials,
basically —
lose £36 billion a year in personal wealth because of this
.

This isn’t just a slight divergence around the mean. This is a
major contributor to inequality in Britain today: Public sector
workers, a minority of all British workers, are marginally better
paid on a weekly basis and twice as wealthy upon retirement as
the rest of us.

So, you can debate whether “overpaid” was the right or wrong term
to use. But the broader picture is that, even after a decade of
austerity, public sector workers are still do significantly
better off than everyone else.

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