Regular pay in the UK public sector grew 5.5 per cent over the year to May. In the private sector it grew 2.9 per cent. One is running at close to double the other, and almost every business in the country recruits against the first number while paying the second.
The figures come from the Office for National Statistics labour market overview released on 21 July, covering March to May 2026. Across Great Britain as a whole, regular earnings excluding bonuses rose 3.4 per cent and total earnings including bonuses rose 4.3 per cent.
What the Gap Means in Practice
A 2.6 percentage point divergence between two halves of the same labour market does not stay theoretical for long. It shows up in recruitment.
For roles that exist in both sectors, and there are many, including finance, HR, IT, facilities, project management, communications and legal, the public sector comparator is moving up faster than the private sector benchmark most firms set their bands against. A private employer holding to 2.9 per cent is, over two or three years, quietly repricing itself relative to an alternative employer its candidates can also apply to.
That does not mean matching 5.5 per cent is the answer. Public sector pay settlements arrive with different pension provision, different job security and different progression structures, and a straight percentage comparison ignores all of it. But a firm that has not looked at the comparator recently is benchmarking against something that has moved.
Real Pay Is Barely Moving
The other way to read the same data is in real terms, and it is less comfortable for employees than the headline suggests.
Adjusted for inflation using CPIH, annual growth was 0.3 per cent for regular pay and 1.1 per cent for total pay. A 3.4 per cent nominal rise, on those numbers, is worth almost nothing once prices are accounted for.
That is a difficult position for both sides of a pay conversation. Employers are paying materially more than they were, and the cost is real on the payroll. Employees are receiving materially more, and it is buying them very little. Neither party is imagining their own experience, and the gap between the two perceptions is inflation.
Recruitment Has Got Easier
Three indicators in the same release point the same way for anyone hiring.
Vacancies fell by 7,000, or 0.9 per cent, to 712,000 in April to June compared with the previous quarter. Unemployment stood at 4.9 per cent, up 0.2 percentage points on the year, though down 0.1 points on the quarter. The claimant count for June was around 1.689 million, up on the month but down on the year.
Fewer vacancies competing for a slightly larger pool of available candidates is, from an employer’s side, a looser market than a year ago. Firms that struggled to fill roles in the recent past may find the same vacancy attracts a different quality of shortlist now.
There is a caveat attached. Economic inactivity, meaning people aged 16 to 64 neither working nor looking for work, was 20.9 per cent, down only 0.1 percentage points on the year. The pool has loosened at the margin rather than transformed.
Where It Meets the Rest of the Data
This release lines up with what employers have been reporting elsewhere, which is worth noting because survey data and official statistics often disagree.
The manufacturing sector’s own survey found hiring growth easing to near stagnation in July even as output accelerated, with firms citing uncertainty. Small businesses named labour costs as the third biggest brake on growth, behind the domestic economy and the tax burden, in the weakest confidence reading the FSB has recorded.
Put together, the picture is consistent: employers are finding staff more available but are not in a hurry to add them, because the cost of each addition has risen faster than their own pricing power.
What the Claimant Count Adds
The claimant count is the least cited of these numbers and the most immediate, because it is administrative rather than survey based. It records people claiming unemployment-related benefits, and it updates monthly rather than on a rolling three-month average.
For June it stood at around 1.689 million, up on the month but down on the year. That combination is worth separating. A rise on the month is a live signal that more people entered the count recently. A fall on the year says the level is still below where it was twelve months ago.
Read alongside a survey unemployment rate that is up 0.2 points on the year but down 0.1 on the quarter, the picture is of a labour market that deteriorated over the past year and has roughly stabilised in recent months rather than continuing to weaken. That distinction matters for anyone deciding whether to hire now or wait. The data does not support the view that conditions will keep easing.
The Retention Arithmetic Has Changed
The pay gap has a second implication that has nothing to do with recruitment, and it is the one most likely to cost money quietly.
If a competing employer’s pay band rises 5.5 per cent while yours rises 2.9 per cent, the gap for an individual employee is not 2.6 per cent. It compounds. Over three years, holding both rates constant, the difference between the two bands widens to roughly eight per cent of salary. That is the point at which a move becomes financially rational for someone who is otherwise content.
Against that sits the cost of replacement, which most firms understand in principle and few cost properly: recruitment fees or advertising, the hiring manager’s time, the vacancy period during which the work is either not done or absorbed by colleagues, and the months before a replacement reaches full productivity. For a skilled role, that total frequently exceeds the cost of a targeted retention increase that would have prevented the departure.
The practical response is not a general uplift, which is expensive and mostly reaches people who were not leaving. It is identifying the specific roles where an external comparator has moved fastest and adjusting those. On these figures, the roles to check first are the ones that also exist in the public sector.
The 2027 Settlement Is the One That Matters
There is a forward-looking reason to watch these figures beyond payroll planning. The Bank of England has said explicitly that the indicator it does not yet have is the shape of 2027 pay settlements.
Its concern is second-round effects, the process by which a one-off rise in energy prices becomes embedded in general wage and price setting rather than dropping out of the annual comparison. Pay settlements are the main channel through which that happens.
At 3.4 per cent regular growth and 0.3 per cent in real terms, current settlements are not obviously feeding an inflationary spiral. But the committee held Bank Rate in July with three of nine members preferring a rise, and the settlements agreed over the coming months are among the things that will decide which way that split resolves.
Employers setting those settlements are, collectively, an input into monetary policy. That is an unusual position for a routine annual decision to occupy.
What to Do With It
Three practical points for a business planning headcount.
Benchmark against the sector you actually compete with for people, not the national average. The national figure of 3.4 per cent conceals a range running from 2.9 to 5.5 per cent depending on which employers your candidates are also considering.
Recognise that the recruitment window has improved slightly. With vacancies down and unemployment up on the year, roles that were hard to fill are worth revisiting before the market tightens again.
And separate the nominal from the real when talking to staff. An employer offering 3.4 per cent is offering roughly 0.3 per cent of purchasing power. Being straightforward about that arithmetic tends to produce a better conversation than presenting the nominal figure as a gain.
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