Add public-pay restoration premiums: calculation note

Central fiscal result

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

Low case: +GBP 2.5bn. High case: +GBP 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 GBP 285bn.
• Two percentage points above inflation equals GBP 5.70bn gross.
• Procurement and pay-drift pressure adds GBP 0.60bn.
• Tax and NI receipts offset about GBP 1.80bn.

Fiscal build-up, central case

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

Central net impact: +GBP 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: +GBP 0.1bn. Preparation only.
• 2027-28: +GBP 5.5bn. First premium year.
• 2028-29: +GBP 11.2bn. Second premium compounds.
• 2029-30: +GBP 17.0bn. Permanent baseline rises.

Main source groups

• S1: S1 WGA: GBP 240.5bn public staff costs in 2023-24.
• S2: S2 ONS: 6.19m public employees.
• S3: S3 HMT: awards funded from departmental budgets.
• S4: S4 IFS: recent public-pay erosion and pressure context.
• S5: S5 HMRC: tax and NI offsets.