Top News

Public sector pay continued to outpace the private sector as official figures showed wage growth remained at its weakest level in four years. The Office for National Statistics (ONS) said public sector workers saw annual earnings rise by 7.9%, compared with just 3.6% for those in the private sector.

Overall regular pay growth across the economy eased to 4.5% in the three months to November, the lowest rate since April 2022, while inflation-adjusted wages rose by 0.9%. The ONS said elevated public sector pay reflected the delayed impact of earlier pay deals.

Industry figures have praised the public sector's wage increase as a much-needed "correction", but warned private pay stagnation is the "real alarm bell".

Colette Mason, author and AI consultant atClever Clogs AI, said public sector pay is pulling ahead because the state "no longer behaves like a cost-disciplined organisation".

She said: "Pay is set politically, not commercially. Private firms fund rises through productivity and profit; Government funds them through tax, borrowing, or inflation.

"That difference matters. This imbalance is not sustainable. You can't grow pay faster than the economy that supports it without shifting burdens onto taxpayers, including private sector workers whose wages are stalling."

Ms Mason added: "Economically, this policy skews incentives. The private sector carries growth risk, while the public sector is shielded from weak productivity. The tax base public services rely on is being quietly eroded. The unresolved issue is fairness: decent pay for essential workers versus fairness to those funding the system without equivalent protections. Ignore that tension and trust drains away."

Kate Underwood, founder and chief people strategist at Kate Underwood HR and Training described public sector pay increases as "playing ugly catch-up", adding that private businesses are "feeling the whiplash".

She said: "Why is it outpacing? Because a lot of public sector deals were delayed, then they landed in one go.

"Private sector pay is a different beast: SMEs are battling stubborn costs, cautious customers, and margins thinner than a Legal Aid biscuit. They can't magic money from a Treasury pot. Is it sustainable? Not at nearly 8% a year, no. It gets paid for via higher taxes, more borrowing, or cuts elsewhere."

She added: "Pick your poison. If it stays that high, it also drags talent away from smaller employers who simply can't compete on salary. What does it mean for the economy? Short term, it helps recruitment and keeps spending ticking over. Longer term, if pay rises aren't matched by productivity, it risks keeping inflation sticky and interest rates higher for longer."

Rohit Parmar-Mistry, founder at Burton-on-Trent-based Pattrn Data, said: "Seeing 7.9% growth isn't a sign of luxury, it's a desperate correction for essential workers who have been underpaid for years. The real alarm bell is the private sector's stagnation at 3.6%."

He added: "We need to stop parroting the tired neoliberal myth that paying people properly inevitably triggers a dangerous wage-price spiral. That is a scare tactic, valid only in narrow theoretical circumstances, not in our current reality. You cannot build a robust economy when your workforce can't afford to spend."

Mr Parmar-Mistry described the data as exposing "a brutal divide".

He said: "SMEs, the real job creators, are being crushed by costs, while big corporate giants continue to hoard rewards. Big business must stop treating wages as a liability to be minimised and start viewing them as the fuel that drives the entire economic engine. Without spending power, the economy stalls."

ONS data highlighted a growing strain in the labour market, with unemployment remaining stuck at 5.1%, close to a five-year high. The number of employees on company payrolls fell by 43,000 in December - the sharpest monthly drop since the pandemic. Job losses were concentrated in retail and hospitality, with payrolled employment down 72,000 and 70,000, respectively, over the past year.

The sectors have been hit by rising costs following higher National Insurance contributions and increases to the minimum wage.

Although vacancies rose slightly by 10,000 to 734,000, the ONS said overall hiring activity remained weak.

Thomas Pugh, chief economist at RSM UK, said: "The slowdown in private sector regular pay growth, to 3.6%, will go some way to reassuring the Monetary Policy Committee that the disinflationary slowdown in pay growth in still happening.

"However, total pay growth remains too fast for the MPC to relax, that will limit its ability to cut rates further this year."

"In the near term, the labour market will probably loosen a little further but should start to gradually recover throughout the rest of 2026."