Index public-sector pay to inflation: calculation note

Central fiscal result

+£2.2bn - Net public-finance impact in 2027-28

Low case: +£0.0bn. High case: +£7.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Require annual public-sector pay awards to match CPI inflation as a minimum from 2027-28.
• Baseline is current law and published official data unless stated.
• Private business costs are excluded unless they affect tax or procurement.
• Target year is 2027-28, with later years shown separately.

Affected population

• Unit is public-sector employee jobs and staff cost.
• ONS estimates 6.19m public-sector employees.
• Paybill base uses WGA staff costs, uprated to 2027-28.
• Commissioned services enter only through pass-through.

Gross impact

• 2027-28 staff-cost base: WGA £240.5bn uprated to £285bn.
• Central extra award: 1pp above planned awards equals £2.85bn.
• Tax and employee NI offset uses a 30% effective rate.
• Procurement pass-through adds £0.20bn.

Fiscal build-up, central case

• Direct public pay top-up: +£2.85bn
• Commissioned-service pass-through: +£0.20bn
• Income tax and employee NI receipts: -£0.85bn
• Administrative costs: +£0.02bn

Central net impact: +£2.2bn in 2027-28.

Behaviour and pass-through

• Low case assumes CPI does not exceed planned awards.
• Central assumes a 1pp above-plan top-up.
• High case assumes repeated 3pp above-plan inflation surprises.
• No automatic retention saving is scored.
• Departmental absorption affects services, not the fiscal sign.

Phasing

• 2026-27: +£0.0bn. No policy floor yet.
• 2027-28: +£2.2bn. First full pay round.
• 2028-29: +£2.4bn. Paybill base grows.
• 2029-30: +£2.6bn. Repeated inflation risk persists.

Main source groups

• Office for National Statistics, "Public sector employment, UK: December 2025" (2026): ONS estimates UK public-sector employment at about 6.19 million in December 2025; sets the population exposed to public-pay policies.
• HM Treasury, "Whole of Government Accounts 2023-24" (2025): Whole of Government Accounts report £240.5bn staff costs and £263.7bn purchases in 2023-24; anchors paybill and procurement exposure.
• HM Treasury, "Economic Evidence to the Pay Review Bodies 2026-27 Pay Round" (2025): Treasury says pay awards must be funded from departmental budgets; means higher awards can crowd out services if unfunded.
• HMRC, "Rates and thresholds for employers 2026 to 2027" (2026): HMRC thresholds define income tax, employee NI, employer NI and statutory-pay recovery; used for tax and statutory-payment offsets.
• Propper and Van Reenen, "Can Pay Regulation Kill?" (Journal of Political Economy, 2010): 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.
• Institute for Fiscal Studies, "Recent trends in public sector pay" (2024): Used to support the baseline, affected-population sizing or behavioural assumptions in the illustrative scenario.
• Autor, Kerr and Kugler, "Does Employment Protection Reduce Productivity?" (Economic Journal, 2007): 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.
• Green Party of England and Wales, "Workers' Charter 2026" (2026): Used to define the pledge wording, policy scope and implementation scenario being modelled.