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Public sector pay outpaces the private sector: "This imbalance is not sustainable"

ended 20. January 2026

PUBLIC sector pay continued to outpace the private sector as official figures showed wage growth remained at its weakest level in five 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.% 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.

Kate Underwood, Founder at Southampton-based Kate Underwood HR and Training, said the Government is in a tough situation when it comes to public sector pay.

She added: "Public sector pay isn’t surging. It’s playing ugly catch-up, and private businesses are feeling the whiplash. Why is it outpacing? Because a lot of public sector deals were delayed, then landed in one go (often backdated). After years of pay freezes, strikes and political pressure, the Government had to move. 

"Private sector pay is a different beast: Small Medium Enterprises (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. 

"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."

Scott Gallacher, Director at Leicester-based Rowley Turton, said austerity is to blame – but it's not sustainable.

He continued: "Public sector pay fell behind the private sector for many years after austerity, so it’s not surprising that a new Labour government is trying to correct that. 

"The problem is that faster public sector pay rises aren’t sustainable in the long run without stronger productivity across the economy, especially in a high-tax, high-debt, low-growth environment. Right now, there’s little sign of real productivity improvement, with recent gains more likely coming from weaker businesses disappearing rather than genuine efficiency gains."

Colette Mason, Author & AI Consultant at London-based Clever Clogs AI, said rising public sector pay will burden taxpayers.

She added: "Public sector pay is pulling ahead because the state no longer behaves like a cost-disciplined organisation. 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. It’s a quiet cross-subsidy that workers and businesses end up paying for. Economically, this policy skews incentives. 

“Security starts to beat innovation. 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.”

Rohit Parmar-Mistry, Founder at Burton-on-Trent-based Pattrn Data, said public sector workers have been underpaid for years.

He continued: “The headline here isn’t that public sector pay is racing ahead, it’s that it’s finally thawing after years of stagnation. 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%. 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 only valid in narrow theoretical circumstances, not our current reality. You cannot build a robust economy when your workforce can’t afford to spend. 

"This data exposes a brutal divide. 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.”
 


 

6 responses from the Newspage community

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Pro
Kate UnderwoodVerified
Founder & Chief People Strategist at Kate Underwood HR and Training
Public sector pay isn’t surging. It’s playing ugly catch-up, and private businesses are feeling the whiplash. Why is it outpacing? Because a lot of public sector deals were delayed, then landed in one go (often backdated). After years of pay freezes, strikes and political pressure, the Government had to move. 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. 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.
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Pro
Scott GallacherVerified
Director at Rowley Turton
Public sector pay fell behind the private sector for many years after austerity, so it’s not surprising that a new Labour government is trying to correct that. The problem is that faster public sector pay rises aren’t sustainable in the long run without stronger productivity across the economy, especially in a high-tax, high-debt, low-growth environment. Right now, there’s little sign of real productivity improvement, with recent gains more likely coming from weaker businesses disappearing rather than genuine efficiency gains.
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Pro
Harry GoodliffeVerified
Director at HTG Mortgages
This gap exists because public sector pay is being politically managed, while private sector pay is being market-managed, and right now the market is tight. Businesses are dealing with weaker demand, higher costs and uncertainty, so pay rises have slowed. The public sector is catching up through delayed deals, but that doesn’t make it sustainable. You can’t keep lifting public pay faster than private wages without either higher taxes, more borrowing, or cuts elsewhere.
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Kundan BhaduriVerified
Entrepreneur, Investor and Landlord at The Kushman Group
This belligerent Labour Government is looting the productive economy to subsidise a bloated bureaucracy that seems immune to market reality. We are witnessing a two tier workforce where the protected class enjoys inflation busting raises and guaranteed pensions while the private sector is told to tighten its belt.

This trajectory is entirely unsustainable because you cannot indefinitely tax the shrinking productive horse to feed the growing cart. If this continues we will not just see a brain drain from the private sector but a capital flight that will leave the Exchequer with nobody left to pay the bill.

While private businesses fight for survival against punishing tax hikes and stagnant productivity the state sector continues to award itself a massive pay rise funded by the very people they are out-earning.

The problem with socialism is that you eventually run out of other people's money, as one Mrs Thatcher once said.
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Colette MasonVerified
AI Ethics Consultant at Clever Clogs AI
Public sector pay is pulling ahead because the state no longer behaves like a cost-disciplined organisation. 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. It’s a quiet cross-subsidy that workers and businesses end up paying for.

Economically, this policy skews incentives. Security starts to beat innovation. 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.
Copy

Rohit Parmar-MistryVerified
Founder at Pattrn Data
The headline here isn’t that public sector pay is racing ahead; it’s that it’s finally thawing after years of stagnation. 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%. 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 only valid in narrow theoretical circumstances, not our current reality. You cannot build a robust economy when your workforce can’t afford to spend.

This data exposes a brutal divide. 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.