Tuesday's decision by the Executive Council to award pay rises to civil servants, even though the economy has yet to make a full recovery, has once again exposed flaws in the current formula of determining such increases.
The Government argues that senior civil servants have had their salaries frozen for three years and those in low and middle bands for two years. They should therefore be given a rise now, because private sector employees had been awarded increases of between 2.95 and 6.15 per cent last year. But the argument stands only if we ignore the fact that when the recession hit four years ago many companies had to adopt drastic measures to stay alive, such as laying off staff and cutting the salaries of those who remained.
As a result, big gaps now exist between pay in the private and public sectors, with civil servants generally much better remunerated. Moreover, the rates of pay increases in the private sector last year were founded on smaller base salaries. So it would be quite wrong to award civil servants rises at about those same rates.
Admittedly, over the past few years, the Government has slashed the entry salaries of new recruits, paid off thousands of civil servants to retire early, and ordered all departments to achieve five per cent savings between 2000 and 2003. But none of these measures has hit serving civil servants personally. Even though their salaries have been frozen, their real pay has risen because of deflation during the period.
In principle, awarding pay rises to civil servants based on pay trends in the private sector is sound. It ensures the Government follows the market, instead of the other way round.
But the reference value of the surveys is limited if the basic salary levels of both the public and private sectors are not broadly comparable; and they are clearly not at present.
