The public and private sectors are shaped by different funding models, workforce structures and decision‑making frameworks. These differences influence how changes in employment costs, pay and workforce demand are absorbed and managed.
Pay developments
Headline figures show annual growth in employees’ average earnings in Great Britain of 4.2% for both regular earnings (excluding bonuses) and total earnings (including bonuses) in the period from October to December 2025. Within this overall picture, pay growth varies between sectors.
Average regular earnings growth was higher in the public sector, at 7.2%, compared with 3.4% in the private sector. This reflects, in part, the timing of public sector pay awards, with some increases being implemented earlier in 2025 than in the previous year.
Across both sectors, employers continue to operate in an environment of rising living costs. Where pay increases are constrained by budgets or commercial considerations, organisations are increasingly focusing on a broader employment offer. This includes attention to workplace culture, flexible working arrangements and effective engagement, all of which play an important role in recruitment and retention.
Employment patterns
Differences are also evident in employment levels. While unemployment has risen to its highest level in five years overall, employment within areas such as central government and the NHS remains high. This reflects the ongoing demand for public services and the essential nature of many public sector roles.
Private sector employment patterns, by contrast, are more closely linked to market conditions and shifts in demand, which can vary significantly by industry and region. Recent ONS figures show that the retail and wholesale sectors saw the greatest fall in jobs with a 65,000 reduction over a 12 month period.
Rising employment costs
Increases to the National Minimum Wage (NMW) and employer National Insurance contributions apply across the economy and affect all employers. As a result, the cost of employing staff continues to rise in both the public and private sectors.
Lower‑paid roles are particularly impacted by NMW increases, while roles paid well above the statutory minimum are less directly affected. That said, employers often seek to maintain appropriate pay differentials, meaning that statutory increases can have wider implications for pay structures.
Looking ahead, further structural change may add to these cost pressures. The UK government has signalled an intention to move towards scrapping age based NMW bands and introducing a single adult rate. If implemented, this would raise basic pay for younger workers and could significantly increase employment costs for organisations with a high proportion of under‑21s, such as those in retail, hospitality and care. While such a change would address concerns about fairness and consistency, it would also compress pay differentials and limit employers’ ability to use lower entry level rates as a route into work. For the public sector, any resulting cost increases would need to be met within fixed budgets or through additional funding decisions, while private sector employers may need to absorb costs through pricing, productivity improvements or workforce redesign. There has been speculation that the policy may be dropped or at least slowed down, perhaps to allow businesses time to prepare.
Structural context and flexibility
Public sector employers typically operate within established pay setting frameworks, including pay bands, national bargaining arrangements and pay review bodies. These structures support consistency, transparency and fairness, while also reflecting budgetary parameters set through formal funding processes.
Private sector employers generally have greater discretion in pay setting, reward structures and workforce planning. They may also have more scope to respond to rising employment costs through productivity measures, pricing decisions or changes to workforce design. These approaches reflect the more market driven nature of the private sector.
Conclusion
Rising employment costs present shared challenges for employers across the economy. While the public and private sectors face similar external pressures, the ways in which those pressures are managed differ, shaped by their respective structures, funding models and operational requirements. Understanding these differences provides useful context for navigating the evolving labour market in a balanced and informed way.
