The Office for National Statistics’ latest figures, released on Tuesday morning, are yet another nail in the coffin of the hopes and aspirations of Nick, 30. According to the ONS, the average earnings growth was 7.6 per cent for the public sector — almost twice the earnings growth of the private sector at 3.9 per cent.
For decades, Britain has operated on a broadly understood agreement: public sector work meant relatively low pay, but attractive pensions, insulation from economic shocks, and a predictable, if sometimes boring, career path. The private sector, on the other hand, was where you went if you were ambitious and seeking the opportunities that higher salaries and accelerated career growth could afford, though with the expectation of more pronounced risk.
Now, that trade-off has been turned on its head. The public sector has more attractive wage growth, pensions with employer contributions regularly exceeding 30 per cent, and, as our collapsing infrastructure and political retrogradation show, the impossibility of firing anyone who does a bad job. We have arrived in a dire situation where the state itself has ended up as the best-paid and best-protected employer in the country, not because it is more productive, but because those within it can compel payment.
The key concern with this arrangement is that it is simply unsustainable. Public sector pay does not arise — directly at least — from wealth creation but from wealth redistribution. Every single pound in public sector salary uplifts must be extracted from the private economy, either through an increase in any of the forms of taxation or deferred through borrowing. When public sector earnings grow at almost double the rate of those in the private sector, the tax base required to support them is being actively weakened.
This reversal has kick-started an economically corrosive death spiral in which higher public sector wages drive up higher tax demands, which in turn suppress private investment and wage growth, leading to further state intervention and an ever-increasing state burden.
Then there is the labour allocation. Rational individuals respond to incentives. If the public sector offers an increasingly generous remunerative package, it will continue to drive ambitious young people away from the private sector, as they realise that the best-case scenario to achieve their medium-term goals of maybe buying a bleak terraced house in Zone 14 and having 0.8 children is to join the blob.
Ambition itself has fallen off a cliff edge in the United Kingdom. The figures from the ONS also reveal that the unemployment rate has risen to a four-year high of 5.1 per cent, now sitting only just behind its Covid-era peak of 5.3 per cent, while the number of individuals claiming unemployment benefits has soared to 1.7 million. For many, there is simply little to inspire them to seek a job, while companies continue to lay off individuals in response to poor economic performance — the number of people employed fell by 38,000 in November alone, the sharpest decline in five years.
The problem is not that civil servants are being overpaid in isolation, though some of them undoubtedly are, and the pension package is increasingly difficult to justify. Rather, it’s that so much of this country’s talent is getting drawn away from actual wealth-creating activities into roles whose output does not expand the economy, while the meaningful private sector jobs are being filled by individuals from abroad who are happy to work for the exponentially deflating salaries that the private sector can offer.
The pension dimension makes the unfairness of this imbalance starker still. While private sector workers have largely been shifted onto defined contribution pension schemes, the public sector still remains insulated from adverse effects by taxpayer-backed defined benefit arrangements. This creates yet another situation in the UK where younger workers are footing the bill for well-off boomers, being taxed increasingly heavily to fund pension promises that they themselves will never receive.
A country cannot consume itself into prosperity, nor can it tax or redistribute its way out of stagnation
This week, in an attempt to show that this dire situation is at least somewhat being taken seriously, Reform pledged to cut 68,500 civil service jobs if the Party wins the next general election. The state is far too big, and this would be a welcome step, however the only way to really improve economic conditions in this country is to overhaul the ambition-punishing jobs scheme that is the public sector at its core. Along with a vast reduction in welfare generosity, any successful government should aim to drastically reduce the pension pot it makes available to public sector workers. Naturally, this would not be popular. Tough choices rarely are, but they are necessary.
A country cannot consume itself into prosperity, nor can it tax or redistribute its way out of stagnation. The only way to get ourselves out of this dire situation is for the state to stop living beyond its means and — like the elderly demographic it exists to keep afloat — downsize.
