Civil Service Salaries & Grade Inflation

Most post-war governments have cut public sector salaries when compared with those of the private sector. This chart, which compares Grade 7 salaries with median earnings in the whole economy, is particularly striking.

This next chart present the same picture in a different way. It shows that Grade 7 salaries have hardly kept up with inflation, let alone average earnings in the wider economy.

Grade Inflation

However … More detailed data shows that the median salary of the whole of the civil service is increasing more quickly than the median salary of individual grades. This must mean that the proportion of more senior staff is increasing whilst the proportion of more junior staff is decreasing.

There are two reasons for this.

The first is that the civil service needs fewer junior staff because significant parts of its operation have been transferred to the web, including tax self-assessment and applications for Universal Credit and for driving and vehicle licences.

The second reason is grade inflation (aka grade drift) caused by pay restraint. One way to fill vacancies or stop more talented staff from leaving is to promote them, or encourage them to move to higher paid jobs at the same level, possibly in another department.

There is plenty of evidence of departments competing with each other to attract staff. (See the late-2023 NAO report Civil Service Workforce: Recruitment, Pay & Performance Management). The NAO found, for instance that highest HEO salary in Defra’s pay structure is £1,601 less than the lowest HEO salary HMRC offers. And, in Newcastle, the highest departmental median salary for EOs was £3,500 more than the lowest median salary in another department. The manager and economist in me welcome this evidence of competition. But I doubt it is good for the health of the civil service.

And then there is pure grade inflation. As we have seen (above) Grade 7s are now paid much less (in inflation-adjusted terms) than they would have been some years ago. So it would be strange indeed if managers, keen to fill vacancies, did not now promote many who would previously have been happily employed on challenging and well remunerated work at HEO/SEO level. This will include poaching from other departments. This is not to say that none of these people deserve their promotions, but pay restraint inevitably leads to a reduction in the average difficulty of the work done at the higher level, and/or poorer average performance at that level.

A stray thought:- Similar charts to those above can no doubt be generated for many public sector workers including in education and the NHS. Has grade inflation occurred there, too, as more teachers get management and other allowances, and many nurses become specialists?

But the doctors’ professional bodies seem to have withstood the pressure to lower their admission standards. There may have been no ‘grade inflation’ which would have masked the lower salaries. Does this help explain the Junior Doctors’ current militancy?

Martin Stanley - Editor - Understanding the Civil Service