Malcolm Gooderham is the founder of Elgin Advisory, and a former Conservative Party adviser.
The trades union-driven narrative about poor pay in the public sector is as misleading as it is divisive.
But if the Treasury bows to union demands for higher public sector pay, they should not do so at the expense of millions of self-employed entrepreneurs – and small business owners – who have not been on strike during the cost-of-living crisis.
The left’s narrative focuses on promoting the perception of inequality. They do so by a partial presentation of pay and conditions data. In reality, the most substantial employment benefits skew to those in the public sector, notably unique levels of: job security; income security; and generous pensions.
All this makes such positions security-rich – and these benefits are in addition to average rates of pay that outstrips those for the self-employed.
The pensions divide is particularly stark. The total taxpayer funding of the four largest state schemes in 2019-20 was £25.4 billion, almost 30 per cent higher in real terms than in 2009-10. State contributions to individual public sector pensions can often exceed 20 percent of salary (with guaranteed and defined benefits on retirement).
Meanwhile the self-employed have to make their own provision while members of a company scheme receive a small contribution of three to five percent.
Such is the nature of private pensions: there are no guarantees about size and payouts on retirement. The average pension pot, built up by savings from those in the private sector, is about £60,000, and is estimated to cover an annual payout of approximately £3,000 a year.
By contrast, the average teacher receives an annual pension of £12,300.
The question for policymakers is whether public sector employees – striking for higher salary settlements – should be given the option to take a percentage of their large pension contribution as income, or defer and receive it in retirement via their pension; an option Labour will not broach with the unions, as much for parochial as ideological reasons.
Their narrative implies that there’s a monolithic public sector and private sector. Labour and the unions promote an image of a private sector where the majority of workers are concentrated in large companies and enjoy substantial in-work benefits, salaries, and job security.
Again, the reverse is the case. Small businesses make-up 99 per cent of companies in the UK in 2022; total employment in SMEs (16.5 million) dwarfs that in large businesses (10.5 million). The vast majority of these businesses are essentially run by the owner and no one else; think, a freelancer, a sole trader, a limited company with only the director working for the business.
Growth categories include some unglamorous sectors often on the margins of the economy, notably private tutors, music teachers and similar professions. The most popular type of small business with employees falls into the tough accommodation and food service sectors, both of which have notoriously high turnover.
The left’s narrative implies that workers in the private sector – unlike those in the public sector – do not have trouble making ends meet. However, the data tell a different story. The self-employed were (pre-pandemic) earning, on average, £200 a week less than those in the public sector.
Small businesses and self-employed people engage in a wide range of activities, generating incomes that cluster at the lower ends of the pay scale. Of the millions of businesses, sole proprietors – with no employees – reported an average turnover of £68,357 per year, which has to cover all their taxes and overheads and then pay a salary and pension contribution.
Unlike their public-sector peers, the self-employed are very exposed to market forces. They have limited capacity to increase the fees for services, especially in an economic downturn.
Such circumstances put further pressure on their earnings and savings, which they need to draw upon should they be made redundant or go out of business – a risk from which public sector employees are largely insulated.
Last year the number of business insolvencies rose 13 per cent, with a total of 22,000 closures. Meanwhile the total number of individual insolvencies was almost 120,000 and the number of redundancies for the year was almost one million, and averaged 77,000 a month.
The dominant narrative is divisive too – and when referring to public service, it is too narrow and needs updating.
There are many sectors of the economy that are not in receipt of taxpayers’ money that nonetheless service the public, both in our rural and urban economy.
For example, dairy farmers toil in all weathers to keep vital products flowing onto kitchen tables and canteens across the country; e-commerce grinds to a halt if there are no delivery drivers working anti-social hours.
Both arguably, whilst performing very different functions, service public needs – raising the question of how apt it is to restrict the definition of public service to workers who receive their salary from the state, rather than the function and benefit they provide.
There are loud voices demanding for an alleged pay gap between the private and public sectors to be closed.
But this view is very misleading and overlooks (wilfully or not) key financial and broader economic factors that must factor into any fair assessment of a worker’s situation. The debate urgently needs rebalancing, and the Treasury must speak up for the self-employed.
Malcolm Gooderham is the founder of Elgin Advisory, and a former Conservative Party adviser.
The trades union-driven narrative about poor pay in the public sector is as misleading as it is divisive.
But if the Treasury bows to union demands for higher public sector pay, they should not do so at the expense of millions of self-employed entrepreneurs – and small business owners – who have not been on strike during the cost-of-living crisis.
The left’s narrative focuses on promoting the perception of inequality. They do so by a partial presentation of pay and conditions data. In reality, the most substantial employment benefits skew to those in the public sector, notably unique levels of: job security; income security; and generous pensions.
All this makes such positions security-rich – and these benefits are in addition to average rates of pay that outstrips those for the self-employed.
The pensions divide is particularly stark. The total taxpayer funding of the four largest state schemes in 2019-20 was £25.4 billion, almost 30 per cent higher in real terms than in 2009-10. State contributions to individual public sector pensions can often exceed 20 percent of salary (with guaranteed and defined benefits on retirement).
Meanwhile the self-employed have to make their own provision while members of a company scheme receive a small contribution of three to five percent.
Such is the nature of private pensions: there are no guarantees about size and payouts on retirement. The average pension pot, built up by savings from those in the private sector, is about £60,000, and is estimated to cover an annual payout of approximately £3,000 a year.
By contrast, the average teacher receives an annual pension of £12,300.
The question for policymakers is whether public sector employees – striking for higher salary settlements – should be given the option to take a percentage of their large pension contribution as income, or defer and receive it in retirement via their pension; an option Labour will not broach with the unions, as much for parochial as ideological reasons.
Their narrative implies that there’s a monolithic public sector and private sector. Labour and the unions promote an image of a private sector where the majority of workers are concentrated in large companies and enjoy substantial in-work benefits, salaries, and job security.
Again, the reverse is the case. Small businesses make-up 99 per cent of companies in the UK in 2022; total employment in SMEs (16.5 million) dwarfs that in large businesses (10.5 million). The vast majority of these businesses are essentially run by the owner and no one else; think, a freelancer, a sole trader, a limited company with only the director working for the business.
Growth categories include some unglamorous sectors often on the margins of the economy, notably private tutors, music teachers and similar professions. The most popular type of small business with employees falls into the tough accommodation and food service sectors, both of which have notoriously high turnover.
The left’s narrative implies that workers in the private sector – unlike those in the public sector – do not have trouble making ends meet. However, the data tell a different story. The self-employed were (pre-pandemic) earning, on average, £200 a week less than those in the public sector.
Small businesses and self-employed people engage in a wide range of activities, generating incomes that cluster at the lower ends of the pay scale. Of the millions of businesses, sole proprietors – with no employees – reported an average turnover of £68,357 per year, which has to cover all their taxes and overheads and then pay a salary and pension contribution.
Unlike their public-sector peers, the self-employed are very exposed to market forces. They have limited capacity to increase the fees for services, especially in an economic downturn.
Such circumstances put further pressure on their earnings and savings, which they need to draw upon should they be made redundant or go out of business – a risk from which public sector employees are largely insulated.
Last year the number of business insolvencies rose 13 per cent, with a total of 22,000 closures. Meanwhile the total number of individual insolvencies was almost 120,000 and the number of redundancies for the year was almost one million, and averaged 77,000 a month.
The dominant narrative is divisive too – and when referring to public service, it is too narrow and needs updating.
There are many sectors of the economy that are not in receipt of taxpayers’ money that nonetheless service the public, both in our rural and urban economy.
For example, dairy farmers toil in all weathers to keep vital products flowing onto kitchen tables and canteens across the country; e-commerce grinds to a halt if there are no delivery drivers working anti-social hours.
Both arguably, whilst performing very different functions, service public needs – raising the question of how apt it is to restrict the definition of public service to workers who receive their salary from the state, rather than the function and benefit they provide.
There are loud voices demanding for an alleged pay gap between the private and public sectors to be closed.
But this view is very misleading and overlooks (wilfully or not) key financial and broader economic factors that must factor into any fair assessment of a worker’s situation. The debate urgently needs rebalancing, and the Treasury must speak up for the self-employed.