Uncapped potential: The fiscal and economic effects of lifting the public sector pay cap

The public sector has faced seven years of consecutive pay squeezes, with real terms cuts in salary at every level. Both public sector organisations covered by pay review bodies and the majority of those where wages are set by collective bargaining have been subjected to the squeeze. Raising public sector pay stands alongside welfare reform and boosting private sector productivity and earnings through industrial strategy as a key part of the response to the country’s crisis in living standards.

In this briefing, we argue that government should revise its policy on public sector pay as part of a wider strategic intervention to raise earnings across the economy, in both the public and the private sectors, and we set out three principles to guide government and pay review bodies in lifting the public sector pay cap.