PolicyLens

Methodology note

Index public-sector pay to inflation: calculation note

Scenario estimate showing gross costs, offsets and behavioural uncertainty; not an official costing.

View main policy page: Index public-sector pay to inflation

Central fiscal result

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

Low case: +GBP 0.0bn. High case: +GBP 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 GBP 240.5bn uprated to GBP 285bn.
  • Central extra award: 1pp above planned awards equals GBP 2.85bn.
  • Tax and employee NI offset uses a 30% effective rate.
  • Procurement pass-through adds GBP 0.20bn.

Fiscal build-up, central case

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

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

Main source groups

  • S1: S1 ONS: 6.19m public-sector employees in December 2025.
  • S2: S2 WGA: GBP 240.5bn public staff costs in 2023-24.
  • S3: S3 HMT: pay awards must be funded from departmental budgets.
  • S4: S4 HMRC: tax and NI rates set receipt offsets.
  • S5: S5 Propper and Van Reenen: pay rules can affect service quality.