Green - Labour market
Index public-sector pay to inflation
Require annual public-sector pay awards to match CPI inflation as a minimum from 2027-28.
Last updated: May 2026.
Paybill baseline
The model uses a GBP 285bn 2027-28 public staff-cost base, built from WGA staff costs and uprated from 2023-24.
- ONS counts 6.19m public-sector employees.
- WGA staff costs were GBP 240.5bn.
- Central case assumes a 1pp inflation top-up.
Core trade-offs
Workers are protected from real-pay cuts, but departments carry inflation risk. If unfunded, the policy means fewer vacancies, weaker services or less capital spending.
- Public workers gain real-pay insurance.
- Taxpayers or services bear the cost.
- No productivity gain is automatic.
Illustrative fiscal impact
+GBP 0.0bn to +GBP 7.0bn. Central estimate: +GBP 2.2bn.
- Positive numbers mean public-finance pressure; negative numbers mean Exchequer savings.
- Gross costs are separated from tax, NI and benefit offsets.
- Private business costs are not automatically fiscal costs.
- Behavioural responses widen the range materially.
- This is not an official costing.
Economic impact by 2027-28
- Jobs: No direct job creation; unfunded awards squeeze vacancy budgets and staffing plans.
- Wages: Public workers gain real-pay protection when awards would otherwise lag CPI.
- Prices: Little direct CPI effect, but procurement and tax pressure may rise.
- GDP / productivity: Likely neutral to negative unless retention gains exceed spending cuts.
Assessment
A hard inflation floor is a pay-insurance policy, not an efficiency reform. It protects public workers, but shifts inflation volatility to departments or taxpayers. The fiscal risk is highest when inflation surprises after spending plans are fixed.
Confidence: Medium-low. Paybill arithmetic is clear; the weak point is how departments absorb unfunded awards.
Main risks
- Budget crowding: Departments may absorb higher pay through vacancies, service cuts or delayed investment.
- Indexation lock-in: Repeated CPI floors can weaken pay discipline and spread inflation shocks.
- Poor targeting: High-shortage and low-shortage occupations receive the same protection.
Safeguards
- Fund above-plan awards transparently.
- Keep pay review bodies occupation-specific.
- Publish headcount and service-quality trade-offs.
Academic evidence
Propper and Van Reenen, Journal of Political Economy, 2010
Can Pay Regulation Kill?
Flat public pay can misallocate staff where local outside wages differ, with service-quality consequences.
Warns against assuming national pay rules automatically improve public-service output.
Autor, Kerr and Kugler, Economic Journal, 2007
Does Employment Protection Reduce Productivity?
Employment-protection changes can reduce productivity where firms face higher firing and adjustment costs.
Supports caution on policies that raise dismissal, scheduling or adjustment costs.
UK government evidence
Office for National Statistics, 2026
Public sector employment, UK: December 2025
ONS estimates UK public-sector employment at about 6.19 million in December 2025.
Sets the population exposed to public-pay policies.
HM Treasury, 2025
Whole of Government Accounts 2023-24
Whole of Government Accounts report GBP 240.5bn staff costs and GBP 263.7bn purchases in 2023-24.
Anchors paybill and procurement exposure.
HM Treasury, 2025
Economic Evidence to the Pay Review Bodies 2026-27 Pay Round
Treasury says pay awards must be funded from departmental budgets.
Means higher awards can crowd out services if unfunded.
Economic Evidence to the Pay Review Bodies 2026-27 Pay Round (2025)
HMRC, 2026
Rates and thresholds for employers 2026 to 2027
HMRC thresholds define income tax, employee NI, employer NI and statutory-pay recovery.
Used for tax and statutory-payment offsets.
Sources
- PolicyLens illustrative scenario methodology for index public-sector pay to inflation Internal - PolicyLens, 2026
- Public sector employment, UK: December 2025 Official statistics - Office for National Statistics, 2026
- Whole of Government Accounts 2023-24 UK government accounts - HM Treasury, 2025
- Economic Evidence to the Pay Review Bodies 2026-27 Pay Round UK government report - HM Treasury, 2025
- Rates and thresholds for employers 2026 to 2027 UK government guidance - HMRC, 2026
- Can Pay Regulation Kill? Academic article - Propper and Van Reenen, Journal of Political Economy, 2010
- Recent trends in public sector pay Research briefing - Institute for Fiscal Studies, 2024
- Does Employment Protection Reduce Productivity? Academic article - Autor, Kerr and Kugler, Economic Journal, 2007
- Workers' Charter 2026 Party policy source - Green Party of England and Wales, 2026
Other Green policies
PolicyLens estimates are illustrative and not official costings.