1.109 Public and private sector organisations compete for employees in different markets across the UK. However, while private sector pay is set in accordance with local labour markets, public sector pay is usually set on a national basis. As a result, in many areas, public sector pay does not reflect local labour market conditions. For example, the Institute for Fiscal Studies have found that public sector workers are paid similar wages to private sector workers in some parts of the country, but over 10 per cent more in other locations.15
1.110 Such differences between public and private sector pay can adversely affect private sector businesses which have to compete with higher public sector wages. It also leads to unfair variations in public sector service quality and limits the number of jobs that the public sector can support. Some public sector organisations, such as Her Majesty's Courts and Tribunals Service, have already successfully taken action to ensure that their pay is in line with local labour markets, but there is the potential for others to take a similar approach. The Autumn Statement therefore announces that:
• the Government will ask independent Pay Review Bodies to consider how public sector pay can be made more responsive to local labour markets, to report by July 2012; and
• the Minister for the Cabinet Office will review how more local, market-facing pay could be introduced in civil service departments. Secretaries of State may then choose to take forward recommendations for their departments.
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15 The IFS Green Budget, The Institute for Fiscal Studies, February 2011.