Civil service pay reform needs an extra £45m ringfenced funding to succeed

The government must commit to ringfencing the £45m needed to fund its promised reform of senior civil service pay or risk undermining job satisfaction and performance, says a new Institute for Government report.

Published today, Pay Reform for the Senior Civil Service, commissioned by the Office of Manpower Economics, reviews current levels of senior civil service pay and assesses the government’s plans to introduce a “capability-based pay” system where senior civil servants are rated and paid as “developing”, “competent” or “expert”.

With a decade of wage restraint meaning median civil service salaries have fallen in real terms by 14-17%, and a civil service director paid half of their private sector equivalent and two thirds of their public sector counterpart, the system needs reform to keep the best people in the right government jobs.

The government says its plans, set out in its Declaration on Government Reform, published earlier this year and signed by the prime minister and cabinet secretary, will reward the most talented civil servants and encourage the development of deeper subject expertise. But failing to properly fund the initial £45m needed for the change, or the ongoing running costs of reform, would be worse for civil service morale and skills retention than doing nothing at all.

The new IfG report also warns that reforming pay is unlikely to do much on its own to reduce job churn within the civil service. Our interviews with private sector experts, professional bodies and civil servants themselves found that changing the incentives for promotion and more focus from ministers and top officials on keeping people in post will make a bigger difference.

The report also finds that:

• Bonuses are not used well to improve civil service performance, and end-of-year bonuses should be scrapped when capability-based pay is introduced.
• There is overlap and confusion about what is “capability” and what is “performance”.
• The Scottish and Welsh governments should be given more flexibility to set senior civil service pay.
• The generous civil service pension in effect removes around half of the pay gap between the civil service and the private sector.

Report co-author and IfG programme director Alex Thomas said:

“The government is right to reform the structure and award of civil service pay, but any new system must be properly funded.mAnd we should not over-estimate what pay reform can achieve. Senior civil servants are motivated by the work they do, their seniority and status more than by pay. So changing how civil servants are promoted and the skills that ministers and permanent secretaries value is just as important as how much government officials are paid.”

Notes for editors

1. The Institute for Government is an independent think tank that works to make government more effective.
2. This report was commissioned by the Office of Manpower Economics (OME) which provides secretariat and analytical support to the public sector pay review bodies: www.gov.uk/government/organisations/office-of-manpower-economics. The views and judgements expressed are those of the Institute for Government and should not be attributed to OME.
3. For more information, please contact press@instituteforgovernment.org.uk / 0785 031 3791.