Towards improved policies on public sector pay

Advising Government on fairer pay for hospitals and schools

Private sector pay in the UK, as elsewhere, is subject to regional variations, reflecting differences in the cost of living as well as the supply and demand for similarly skilled labour. The public sector does not have this same variation. As a result, in some parts of the country, public sector pay is perceived as uncompetitive; attracting and retaining staff becomes harder. Therefore, creating pay systems that neither underpay nor overpay public sector staff is crucial for the provision of high-quality services.

Our researchers at the University of Aberdeen’s Health Economics Research Unit developed a model of the causes of local variations in pay competitiveness and showed the impact of these variations on health and teaching services. This research set out the economic case for making public sector pay more responsive to local labour markets.

Recommendations arising from this research have changed:

• the way funding is distributed to Primary Care Trusts in England and Wales;
• the adjustment for excess costs in the resource allocation formula for health services in Scotland; and
• the structure of regional pay for doctors in the UK.  

The evidence also underpinned proposals by the Chancellor of the Exchequer in 2012 to introduce local pay for health service and teaching professionals in England.

60% of public spending on hospitals in the UK goes on pay. It's critical that money is distributed fairly and efficiently. We're devising models to ensure this

Professor Bob Elliott

Find out more

• Professor Bob Elliott's staff profile

Key publications

• Elliott RF, Bell D, Scott A, Ma A, and Roberts E. 2007. The pattern and evolution of geographic wage differences in the public and private sectors in Britain. Manchester School 75(4), 386-421
• Elliott R, Sutton M, Ma A, McConnachie A, Morris S, Rice N and Skåtun D. (2010). The role of the staff MFF in distributing NHS funding: taking account of differences in local labour market conditions. Health Economics: 19, 532-548

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