How to be a Civil Servant

Civil Service Pay

Overview

There are approaching 6 million public servants in the UK, but only around 10% of these are civil servants. (Click here for further detail.) Civil service pay therefore represents only a small fraction of total public sector pay. The vast majority of civil servants earn pretty much the same as their private sector counterparts. (At 31 March 2009, median gross annual earnings for all full time civil service employees were £22,100.) Senior civil servants, however, earn significantly less than their opposite numbers in the private sector.

Detail

Apart from the Senior Civil Service (see further below), there are no government wide pay systems. Subject to Treasury approval, each department is encouraged to establish reward structures and pay scales which meet their own particular needs. Annual increases in pay scales are then negotiated with the Treasury in the form of an annual 'pay remit'. But there is a fair degree of consistency across the main departments (or else too many staff would try to migrate). The results may be summarised as follows.

First (with a tiny number of well-publicised exceptions, generally recruited from outside the civil service) the most senior civil servants are paid less than half of their private sector equivalents. But pay rates improve, relative to the private sector, the further one descends through the ranks, to the extent that the very lowest grades are paid about the same as their private sector counterparts. But it cannot be stressed too strongly that such pay nevertheless does remain low in absolute terms, as do the pensions that result from such low paid employment. According to the main civil service union, a quarter of civil servants earned less than £15,430 a year in 2006. The following chart, taken from the 2009 Senior Salaries Review Body Report, summarises the position rather well, though please note that the top bar in this chart summarises all public sector pay, not just civil service pay.

Second, the civil service offers a pretty good pension scheme. Contributions to the premium scheme are only 3.5%, but the employer is charged another 22% on top, so this has to be taken into account when comparing civil service and other salaries. Click here for more information about civil service pensions.

Third, there has over recent years been a move towards paying non-pensionable bonuses, rather than increasing salaries. This reduces the total and long term cost to the exchequer, even though the size of public sector bonuses paid to senior staff remains very low compared to the private sector. This has not, however, stopped media criticism of bonuses being paid to civil servants - especially those in the Ministry of Defence - in the wake of similar criticism of the much higher bankers' bonuses and bearing in mind the low pay of soldiers risking their lives out in Afghanistan.

Fourth, there is these days no more job security in the civil service than outside it:- see separate notes on civil service numbers and Can Civil Servants be Dismissed?.

Fifth, all civil service departments offer national pay rates - as does much of the rest of the public sector. There are strong arguments that this is very damaging both in the South-east and in the regions. Professor Alison Wolf of Kings College London wrote a thought provoking report on this issue for Centre Forum in February 2009. She argued that private sector employers who want a good quality workforce have to match or exceed what people can get in the public sector. Poor regions and poor cities typically have bad road or rail connections as well as old industries that have died; one of their few, but genuine, competitive advantages should be lower wage costs to match their lower property costs. By importing national pay scales for large parts of the workforce, we force local employers to match these. In other words, the way we set public sector pay directly increases private employers' costs in our poorer regions and reduces their ability to create jobs for local people. They also incidentally reduce the incentive on civil service managers to move staff out of London to save money. (But see Matthew Parris' column in The Times (6 February 2010) for an entertaining summary of the political and presentational reasons why this pay system will survive for some time yet.)

Over the longer term, civil service pay seems to track changes in the wider economy reasonably well. The most junior officials are currently paid around 50% to 60% of average UK salary, compared with around 40% to 70% in 1986. The equivalent figures for Executive Officers and their equivalents are 80-90% compared with 60-110% in 1986. And Permanent Secretaries, like their private sector Board-level counterparts, have significantly improved their position, from around 6 times average salary in 1986 to 8.5-12 times average salary in 2007. (I am grateful to Neil Macaskill for providing these figures.)

The Senior Civil Service (SCS)

Although there are only just over 4,200 of them (around 1% of the total), a good deal of attention is paid each year to the salaries of the SCS. This is because

• they are very well paid relative to the taxpaying population at large, and yet
• they are very poorly paid relative to their private sector counterparts, even though
• their jobs are these days no more secure than those of those same counterparts.

Let's look at each of these factors in turn.

No member of the SCS is on the bread line. The vast majority earn between £57,000 and £100,000 and Permanent Secretaries (heads of department) earn £140,000 and more.

But equivalent private sector salaries are much higher. Here are some quotes from the 2006 report of the Senior Salaries Review Body:-

• Even at the lowest level in the SCS sample, base pay has fallen behind the private and broader public sector markets.
• Base pay of the sample becomes progressively less competitive as job size increases.
• Comparison with the market closest to the SCS, London local government, shows the SCS sample earning significantly less.
• Comparison of total cash (i.e. including bonuses) exacerbates the disparity between the SCS sample and the private sector market.
• SCS pensions remain competitive at lower levels. However, the annualised cash value is not competitive at higher levels compared with other defined benefit schemes because SCS salaries are so far below market levels.
• Total remuneration is significantly below private sector figures.
• Intangible benefits such as job variety and interest, maternity benefits and ability to influence were all quoted as compensating benefits of working for the SCS.

More recently, the 2009 SSRB Report said that "... the fact is that successive independent job evaluation exercises and other evidence show widening gaps between public and private sector reward for senior staff."

Further detail is in Hay's 2005 Pay Market Comparability Study which contains the following telling chart. (The bottom two lines are SCS remuneration inc. pension; I&S = industrial & service sector, excluding finalncial servicees and main board members; TR = total remuneration.)

Turning to job security, the same Hay report notes that, although SCS staff turnover remains low at around 10%, it is on a rising trend. Also, of the 373 members that left the SCS in 2004-5, only 141 had reached retiring age or died. The other 237 resigned or came to the end of fixed term contracts or were encouraged to leave with the help of early retirement packages. It is therefore only a minority of the SCS that survive through to retirement age. Just as in the higher levels of the private sector, there is a high attrition rate at age 50 and above.

SCS Pay: Further Detail

Overall, therefore, low pay persists because most of the SCS find their work to be very rewarding, in the non-financial sense. Nevertheless, strains are beginning to show. The following are further quotes from the 2006 report of the Senior Salaries Review Body.

• "Since 2002 we have had made clear in successive reports our view that the Government was failing to fund the SCS pay system in such a way as to meet its own targets for speed of progression. As pay at the most senior levels in the private sector and, to a somewhat lesser extent, in the wider public sector has continued to increase more rapidly than overall earnings, SCS pay has fallen further behind, especially at [Grade 3/Under Secretary] and above.

• The Government acknowledges that it is proving more difficult to recruit high quality candidates from the private and wider public sectors, and that to do so it has to make extensive use of the top end of the SCS pay bands to attract strong applicants.

• Overall, the [Civil Service] Commissioners think the system is just about flexible enough to allow for the recruitment of people from outside the civil service, though they note a number prefer to come on secondment or, if from the NHS, to retain their salary package, because of the greater benefits they can secure by these means. However, they believe that salary will increasingly become an issue for another reason. Civil servants might have been willing in the past to accept lower salaries than those on offer in the private sector because other elements of the package were attractive, e.g. job security and pension, and they recognised that private sector salaries reflected an element of risk and greater job insecurity. This is changing. The overall package for the civil service is beginning to come under pressure and the civil service has yet to work through the implications. Against this background, the Commissioners are concerned at the disparity between the salaries on offer to successful non civil service candidates and existing civil servants.

• We drew attention in our twenty-seventh report to the growing evidence that those joining the SCS from outside are paid on average significantly more than existing civil servants. Sir Andrew Turnbull also acknowledged the problem in his valedictory speech as Cabinet Secretary, and the Civil Service Commissioners commented on it in their evidence to us this year, as did the Government itself which said: "To attract strong candidates we are having to make extensive use of the top end of the SCS Pay Bands. This is leading to widening and unsustainable differentials between external and internal recruits, the so called 'dual market'."

At Grade 3/Under Secretary level, for instance, the SSRB noted that internal recruits were appointed at salaries which averaged £92,000, whilst the equivalent figure for external candidates was £102,500.

Recent Developments

As with more junior officials, the government was until 2008 trying to switch SCS remuneration away from pensionable salary into non-consolidated (that is non-pensionable) bonus. The main motivation was to save money by reducing pension payments in the long term, and hence employers' pension contributions in the short term. But bonuses were also intended to reward different behaviours to those rewarded by permanent salary increases:

• Salary is intended to reward an individual's value to the organisation and sustainable contribution as a member of the SCS. It should reflect size and challenge of the job; professional and leadership competence; an individual's market value; and track record of delivery in so far as that gives assurance of future sustainable performance.
• Non-consolidated bonuses are intended to reward delivery of personal in-year business objectives or other short-term personal contributions to wider organisational goals. Eligibility for bonus should be judged in relation to performance against agreed priority targets, total delivery record over the year, relative stretch of objectives, and response to unforeseen events which affected the performance agreement.

But the bonus system had become the subject of persistent criticism. Although "the bonus pot" had reached 8.6% of total SCS salaries by 2008, bonuses were paid to 66% of the SCS so the average bonus was only around 12% which was in practice far too low to change behaviour. (Private sector bonuses, for senior staff, were typically much higher, and so drove behaviours much harder.) On the other hand, the 2008 financial and economic crisis brought those very high private sector bonuses into disrepute. As a result, there was a pretty strong consensus that there should be no further move in the direction of substituting bonus for salary. The SSRB accordingly recommended (and the Government agreed) that the bonus pot should remain at 8.6% in 2009.

More striking still, Permanent Secretaries, the top level of the SCS, collectively decided to forgo their entitlement to bonuses in 2009 in recognition of the economic background. And, although the Government originally recommended to the SSRB that individual SCS salaries should on average rise by 2.86%* in 2009, and the SSRB recommended 2.9%*, the Government eventually decided to limit the rises to 1.5%* plus recyclables - that is 2.3%*. Cabinet Office Minister Liam Byrne said that "This is just about people at the top of public life setting an example and joining in the wider job that we've got to do which is about making sure that every penny of public spending goes to where it's really needed." The reaction of the SCS was fairly muted. They, above all, were capable of recognising political reality when they saw it.

(*"Recyclables" arise because those leaving the SCS are on average replaced by new entrants on lower salaries, yielding an annual saving of around 0.8% of total salary bill. So the 2.3% average increase for individual members of the SCS will cost the taxpayer only 1.5% of the 2008-9 salary bill - the headline figure in the Government's announcement.)

This is a complex subject and I would be glad to be corrected if I have misunderstood or over-simplified anything. Please therefore email me if you have any comments on this web page.