The outcome of the UK’s next election may well be determined by debates about the efficiency of the public sector, especially in education and health. Labour’s traditional tax and spend policies appear to have failed yet again. Despite dramatic increases in public spending there appears to be no corresponding increase in output and efficiency. Why? The first reason relates to the simple idea that there is a clear correspondence between pay and performance. This is not, nor has it ever been, true. Perceived low pay can and does lead to considerable dissatisfaction and demotivation but not vice versa.