The public sector starts at No 1 Easy Street

For years Karen Moffat toiled away in the canteen of her local supermarket, before realising she could earn more, work fewer hours and be less stressed by taking a job in the public sector.

The mother of two is one of more than 900,000 workers to have signed up for a life working for the state since Labour came to power in 1997.

These days Moffat, 60, manages a shop at an NHS hospital in the Northumberland town of Morpeth, where the state employs 57% of the workforce - the highest proportion in the UK.

Life in the public sector is good to Moffat. "I'm looked after really well - it doesn't compare," she said. "While I was at the supermarket I felt really pressured. There were not enough staff. I had to work on my own a lot of the time. 

"In the NHS the pay is better, and there are more staff, so I don't feel so put upon."

Morpeth's businesses have a less upbeat view of the pay and conditions offered by the NHS, HM Revenue and Customs, local councils and other big public sector employers in the area.

In a battle played out across the country, local firms are losing an unwinnable battle to keep hold of their workers.

"Over the years, I have lost many staff to the public sector," said Keith Peters, who owns the Jewellers Guild, in Morpeth's Sanderson Arcade. "I train them up and they leave. They often go to the council to do similar roles.

"My business is doing well at the moment, but I cannot afford to offer the same benefits as employers in the public sector."

While many private firms are fighting for survival during the recession, it seems there is no end in sight for the public sector's golden age.

There are now nearly 6.1m people employed by the British state - up 914,000 compared with 1997. They now represent more than 21% of the overall workforce, a higher proportion than in Germany, America and Australia, and four times as much as in Japan.

Only Norway, Finland, Sweden and France had a higher share of public sector workers, when the Organisation for Economic Co-operation and Development (OECD) last published a report on main world economies in 2005.

It is hard to blame those workers who have opted to join the public sector. Since 2005, the average public sector worker has been paid more in wages and bonuses than his private sector equivalent. Only the highest 20% of private sector workers are now paid more than their public sector peers.

If the advantages in pay are attractive, so are the better working conditions and benefits. Last year the average public sector working week fell from 36 to 35 hours. The average private sector week remained at 37.5 hours. Public sector workers also typically enjoy between three and four more days of holidays a year.

The bill for this public sector largesse lands on the doorsteps of taxpayers. Last week the Centre for Economics and Business Research said that if public sector wage inflation had risen at the same rate as that in the private sector over the past two years, £11 billion of the National Insurance and income tax rises to be introduced in April would have been unnecessary.

"The way we are heading is for a Gallic economy - a large, inflexible public sector with an ever smaller private sector," said Nick Bosanquet, professor of health policy at Imperial College London.

As a director of Reform, the think tank, Bosanquet is not short of views about how the pay and perks of public sector workers should be modernised. "What we have now is a public sector that is better paid in many ways than the private sector, but does not have the drive to raise its productivity - that is the job for the next 10 years."

Expecting a Conservative victory in this year's general election, he added: "The key word for the Tories to remember is 'monopoly'. If you have a vast public sector bureaucracy, you are only going to get limited performance out of it. You need to unleash the forces of competition and innovation."

Bosanquet suggests NHS trusts and schools should be allowed to decide how much staff are paid, so local businesses are not crowded out.

One of the prime targets for an incoming Tory government would be public sector pensions, the greatest inequality between state and private sector workers. More than three-quarters of public sector workers belong to a defined-benefit pension scheme. Members get an inflation-linked income of up to two-thirds of their final salary for the rest of their life.

During their working life, staff pour in some of their own salaries, but the bulk of the contributions come from the employer. Civil servants receivesuch contributions worth up to 19.4% of their salary each year.

In the private sector, just 17% of workers belong to defined-benefit schemes, with 58% of staff not a member of any employer-sponsored scheme.

Dwindling stock market returns and greater longevity has forced almost all main companies to close their defined-benefit schemes, and offer staff a far less lucrative defined- contribution scheme instead.

Back in Morpeth, Peters cannot find the money to set up pensions for his staff - let alone offer something as generous as provided for council staff at taxpayers' expense. "I cannot afford to pay into a pension fund for myself," he said. "So I certainly can't for my staff."