SRC in 4-year notice to cut wage bill to 35 per cent of revenue

The Salaries and Remuneration Commission has four years to lead a drastic reduction of the soaring public wage bill, which hit an all-time high of Sh1.24 trillion in the 2024-25 spending period.

The High Court, in a judgment on Friday, gave the commission four and a half years to achieve the legally prescribed ceiling of 35 per cent of national revenue.

 Justice Lawrence Mugambi in a ruling declared that the continued violation of wage bill limits by national and county governments undermines economic growth, stifles development and breaches the constitutional rights of ordinary Kenyans.

If implemented, could spell doom for the 1.2 million public servants, either in job or significant pay cuts, especially allowances.

The judgment followed a constitutional petition filed by Eliud Matindi in August 2023, challenging the SRC’s decision to review and increase remuneration for state officers for the 2023-24 and 2024-25 financial years.

While the court dismissed several of Matindi’s claims, including that public participation was inadequate and that backdating salary increases was unlawful, it firmly upheld his argument that the country’s public wage bill has persistently and illegally exceeded fiscal sustainability limits.

Citing data presented during the Third National Wage Bill Conference in April 2024, Justice Mugambi noted the wage bill to revenue ratio stood at 54.77 per cent in 2020-21, 47.06 per cent in 2021-22 and was projected at 46.64 per cent in 2022-23.

The numbers are far above the 35 per cent cap set by the Public Finance Management Act and its regulations.

“There is no equity in a nation whose population is over 50 million but half of its total revenue is gobbled up by just over a million public and state officers,” Justice Mugambi stated in his ruling.

He emphasised that such excessive spending directly contravenes constitutional principles of equitable development, sustainable growth and the state’s obligation to provide healthcare, education, housing, food and social security to all citizens.

“Spending half of total revenue on remuneration for a tiny fraction of the population is a breach of the principles of public finance,” the judge said.

As part of the orders issued by the court, the SRC is now required to file annual affidavits starting June 30, 2026.

The affidavits should detail time-bound strategies, collaborative measures with stakeholders, advisories issued to curb allowance abuses and progress made in reducing the wage bill ratio.

The court also declared that any national or county government budget exceeding the 35 per cent wage bill limit is unconstitutional and void.

The nullity will, however, only take effect from July 1, 2030, to allow a transitional period for compliance.

Further, the judgment mandates that all public sector employers, including national and county governments, state corporations and public universities, must seek and obtain advice from the SRC before implementing any remuneration increases or collective bargaining agreements that could raise the public compensation bill.

While this has been the standard practice, some entities have been flagged for bypassing SRC in salary adjustments.

A separate court recently held that it is mandatory for all state agencies, including Parliament and the Public Service Commission, to run all salary-related issues through SRC.

The Public Service Commission has, over time, fought SRC’s attempt to regulate the salaries of all civil servants, including teachers.

SRC currently wants its mandate expanded to set salaries for teachers, port workers, and members of Cotu-affiliated institutions.

The ruling represents a significant judicial intervention into the country’s long-standing struggle with an unsustainable public wage bill, which has crowded out development expenditure and contributed to rising public debt.

For instance, in the current financial year, with salaries taking up Sh1.2 trillion, and debt repayment gobbling another Sh1.1 trillion, the exchequer is left with not enough money for development.

This is considering that spending by ministries on day-to-day operations amounts to about Sh2 trillion.

The situation is getting worse, with projections showing the 2026-27 budget will have a deficit of more than Sh130 billion after the discretionary expenditures.

During court proceedings, the SRC acknowledged the problem but argued it cannot solve it alone, calling for multi-stakeholder support.

Justice Mugambi, however, stressed the commission holds a central constitutional mandate to ensure fiscal sustainability in public remuneration.

The judgment has been welcomed by governance and economic analysts, who see it as a critical step towards restoring fiscal discipline and redirecting resources to essential public services and development projects.

“It's not lost on me that I used a report authored by Ndii in 2004 to support my argument that SRC was violating the constitution by setting the remunerations and benefits for state officers at a ridiculously high level,” Matindi, the petitioner, said.

President William Ruto's economic adviser David Ndii fired back, saying, “It is more ironic than you think. The mandate of the SRC is drawn directly from the recommendations of that report [which Francis Muthaura resisted by the way]. The misfortune of my engagement by CoE seven years later is how SRC came into Chapter 12 of the Constitution.”