Add public-pay restoration premiums: calculation note

Central fiscal result

+£5.5bn - Net public-finance impact in 2027-28

Low case: +£2.5bn. High case: +£12.0bn. Positive numbers are fiscal costs or borrowing pressure. Negative numbers are Exchequer savings or receipts.

Scenario and baseline

• Add recurring real-terms public-sector pay rises above inflation 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 staff cost.
• ONS estimates 6.19m public-sector employees.
• WGA staff costs anchor the paybill.
• Low-paid targeted uplift is costed separately.

Gross impact

• 2027-28 staff-cost base is £285bn.
• Two percentage points above inflation equals £5.70bn gross.
• Procurement and pay-drift pressure adds £0.60bn.
• Tax and NI receipts offset about £1.80bn.

Fiscal build-up, central case

• Additional public pay: +£5.70bn
• Procurement and pay-drift pressure: +£1.60bn
• Income tax and employee NI receipts: -£1.25bn
• Employer NI receipts: -£0.55bn

Central net impact: +£5.5bn in 2027-28.

Behaviour and pass-through

• Low case assumes 1pp premium and some absorption.
• Central assumes 2pp real premium in year one.
• High case assumes 4pp and stronger pay drift.
• No recruitment saving is deducted.
• Crowding-out risk rises over time.

Phasing

• 2026-27: +£0.1bn. Preparation only.
• 2027-28: +£5.5bn. First premium year.
• 2028-29: +£11.2bn. Second premium compounds.
• 2029-30: +£17.0bn. Permanent baseline rises.

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.
• 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.
• 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.
• 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.