Hay Group director Peter Smith made the call after the Ministry of Defence (MoD) revealed it is spending £400m on contracted workers to cover posts it cannot recruit due to offering uncompetitive wages.
MoD chiefs told MPs on Monday that around 400 highly skilled jobs at the department were vacant.
Speaking before the Public Accounts Committee (PAC), chief of defence materiel Bernard Gray said the department was paying out more to cover private sector salaries instead of offering permanent staff more attractive packages.
He said the mark-up on some roles was as high as 100%. Instead, the MoD wants to combine its budget for consultants and staff and set its own pay rates.
Smith said the problem within MoD recruitment was similar across government departments, and had been worsening since the public sector pay freeze and reductions to civil service bonuses in 2010.
He warned the Government and civil service leaders were “caught in a trap”.
“Central Government pay is only suitable for a closed career system, where people join after school or university and stay for life,” he said.
“It is uncompetitive at professional level and above, and is totally unsuited to bringing in important skills in mid-career and for specific needs.
“Yet no government will be prepared to raise the pay of everyone in the civil service to match the wider market – it would be unaffordable.
“So ministers continue to clamp down on pay, which means that essential posts cannot be filled except by contractors at much higher prices.”
Hay Group provides annual data and advice to the Cabinet Office on pay trends. Based on this information, Smith noted that at the lowest level of civil service pay, salaries were about two-thirds of the mid-market level for the private sector.
“Total cash (basic pay plus annual bonuses) is about 55%, and the total package, including benefits, is worth about half what the private sector offers,” he added.
“It is true that the civil service package has some flexibility above that, but not as much as industry does,” Smith continued.
“Unsurprisingly, most people with marketable skills will not work in the civil service. And if a private sector company wants to poach any civil service talent, it is hard to see how the MoD or anyone else can keep them.”
Smith said it would be more sensible for the MoD to pay market rates.
“Fixed term or even permanent recruits from the private sector would still be cheaper than consultants,” he said.
The PAC heard the MoD evidence as part of its investigation into the MoD Equipment Plan 2013-23 and Major Projects Report 2013.
