 Comment & Analysis |
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Wednesday January 30, 02:24 PM
UK govt limits on public sector pay have little impact on inflation - IFS
LONDON (Thomson Financial) - The UK government's decision to delay awarding public sector workers the full pay rise recommended by the independent pay review boards will do little to reduce inflation, a leading economic think tank said today.
The government has come in for severe criticism from unions and other lobby groups for staggering pay awards, meaning that some workers - most notably the police claim that their effective pay awards will be below the level recommended by the board.
The government says it wants to keep public sector pay awards close to 2 pct to help prevent rising inflation. However the Institution for Fiscal Studies says this will have little impact on pricing pressures.
'Unpopular decisions to 'stage' public sector pay awards recommended by Pay Review Bodies generate only modest one-off financial savings, make little contribution to the fight against inflation, and threaten to undermine the credibility of the Pay Review Body process,' said Antoine Bozio at IFS.
Bozio points out the Bank of England has often stated that it sees pay increases of around 4.5 pct a year across the whole economy to be consistent with its inflation target, so public sector pay rises are well within this band.
'If the government wants to cut spending it should refocus its energy on public sector pensions rather than pay', he said noting that public sector workers now have pension benefits worth around 12 pct more of their gross pay than those in the private sector.
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