Study shows earnings 2.7% more on average than private sector counterparts, but the gap has narrowed since coalition elected

Three years of Treasury pay restraint have left public employees the biggest losers from Britain's post-recession earnings squeeze, according to official figures released on Monday.

Data from the Office for National Statistics showed a narrowing of the pay gap between public and private sector pay, with workers in the private sector earning more on some measures.

In a study that shows a reversal of fortunes since the early years of the financial and economic crisis, the ONS said public servants were now finding it more difficult to secure pay increases than their private sector counterparts.

The study showed that public sector workers earn 2.7% more on average than those in the private sector when factors such as age, experience and qualifications are taken into account, but the gap has narrowed from 4.3% in 2010, the year the coalition came to power.

The ONS said, however, that pay in the public sector was lower once allowances were made for the size of organisations.

It said that, on average, people who worked for organisations with more than 500 employees earned more than those who worked for smaller organisations. While the public sector was made up largely of big organisations, the private sector was more evenly split. Once this was taken into account, public sector pay was between 1.3% and 2.4% lower.

The ONS figures showed that the pay gap between public and private sector workers was 8% among the lowest paid workers in each sector once the size of organisations was taken into account. At the top, private sector employees earned 11% more than those in the public sector.

Across the UK, the gap between public and private earnings was widest in Northern Ireland, while in London, public sector workers earned 11% less than those in the private sector.

TUC general secretary Frances O'Grady said: "Years of freezes, real-terms pay cuts and rounds of redundancies have left public servants facing a sharp squeeze in their living standards.

"Not only do public sector workers now earn less than equivalent staff in the private sector, they also face greater job insecurity as hundreds of thousands of posts are set to go in the coming years.

"Top earners in the private sector enjoy a huge wage premium over the public sector, but the lowest paid do even worse than their public sector counterparts. If private businesses paid their lowest paid staff more fairly we'd make huge inroads into reducing in-work poverty."

Higher food and energy prices have hit poorer households relatively hard over the past decade, according to a separate report from the consulting firm PwC.

It found that price rises for the poorest 10% of households in the UK had totalled 40% in the decade since 2003 against 32% for the richest 10% of households. The cumulative inflation gap of eight percentage points equated to an extra financial burden on the poorest households in 2013 of around £20 per week, said John Hawksworth, PwC's chief economist. The report estimated that 80% of the net increase in jobs since 2008 has been in low-pay sectors such as retailing, hotels and catering.

Analysis in PwC's latest UK Economic Outlook also shows that median real household incomes are currently around 7% below 2007 peak levels. Real incomes are expected to recover gradually from 2015 onwards, but it will be 2019 before they are back above pre-crisis peak levels after adjusting for inflation.

Average real wages have also declined sharply since 2008 and are unlikely to return to their pre-crisis peaks until around 2020. The report estimates that around 80% of the net increase in employment since 2008 has been in sectors with below-average pay levels such as retailing, hotels and catering.

John Hawksworth, chief economist at PwC, said: "The UK economic recovery has so far been rich in jobs but poor in productivity and wages. The sharp decline in real wages reflects a number of factors, including falling productivity, the rise in VAT in January 2011 and rising import prices, although these effects are now starting to fade as the pound has risen and inflation has returned to target. Real household incomes should therefore gradually begin to recover, helped by strong employment growth and continued real increases in the basic state pension."

"Poorer households have suffered from higher effective inflation rates on average over the past decade, due in particular to rising food and energy prices, which represent a relatively high percentage of their budget," Hawksworth said. "There is also some evidence that Northern Ireland, Wales and Scotland have been disproportionately impacted by high energy prices in terms of fuel poverty rates."