UK plans 5% pay rises for public sector workers

Pay deals for UK public sector staff could involve increases of up to 5% this year, government insiders say, as ministers try to avoid widespread strikes by key workers.

Amid the escalating cost-of-living crisis, ministers say it is increasingly untenable to keep public sector pay deals – notably for nurses and teachers – within the two-to-one range. 3% they targeted.

However, the Treasury refuses to fund more generous pay deals, meaning Whitehall departments would have to find the money for 5% settlements within existing budgets.

A government aide said independent pay review bodies – which make recommendations to ministers on the salaries of teachers and health workers, police and prison staff, civil servants and the armed forces – should recommend in the coming weeks wage increases typically “one or two percentage points” above the 3% cap, implying 5% awards in at least some cases.

If ministers accept the recommendations, “unless things change, those increases should still come from efficiencies rather than the Treasury handing over more funding,” the aide added.

Prime Minister Boris Johnson and Chancellor Rishi Sunak have argued that big public sector pay rises would be both unaffordable and inflationary, given the Bank of England’s fears of a so-called spiral wages and prices.

But one minister said: “If we don’t move towards 5% on some of these [pay] agreements, we risk wave after wave of strikes.

The minister added that Downing Street was primarily concerned about pay rises for nurses and teachers “who are likely to cause the most headaches”.

The Treasury said any public sector wage increases “must be proportionate and balanced with the need to manage inflationary pressures and public sector finances”.

As inflation hits 9.1%, its highest level in 40 years, opinion polls suggest mounting public anger at the government’s suggestion that key workers should take a big pay cut.

“Inflation is not fueled by nurses and caregivers who want enough pay to keep food on the table,” said Frances O’Grady, general secretary of the Trades Union Congress.

Most British workers face pay cuts in real terms this year, with the BoE predicting inflation will hit 11% in October.

Public sector personnel, however, have already been hit hard: their salaries are on average already around 4.3% lower in real terms than they were in 2010.

The latest official data shows that staff salaries have increased by only 1.5% in nominal terms over the past year, compared to an average total compensation growth of 8% for the private sector.

Column chart of nominal monthly wage growth, by position in the UK income distribution, % showing top earners have seen the greatest wage growth over the past two years

Against this backdrop, Britain’s biggest rail strikes in a generation began on Tuesday when 40,000 members of the RMT union quit over pay, working practices and redundancies. Many are employed by the public company Network Rail, operator of the infrastructure.

Now unions representing teachers, young doctors and civil servants are preparing to elect their members over possible industrial action if their wage demands are not met.

But despite the risk of widespread industrial action, Sunak is resisting pressure from departments in Whitehall to reopen its spending review from last year to fund better pay deals.

Last month, the Chancellor unveiled £15bn of targeted support to help households cope with the rising cost of living, which the Institute for Fiscal Studies think tank says will almost offset the full impact on the poorest families.

But with that support in place, the Treasury is digging against new demands.

Although higher inflation is likely to bolster government tax revenues, Sunak allies have said there will be no additional funding for departments in Whitehall to help them deal with wage pressures.

UK Chancellor Rishi Sunak, pictured in May

Allies of UK Chancellor Rishi Sunak have said there will be no additional funding for departments in Whitehall to help them deal with pay pressures © Reuters

They added that departments had “flexibility” to respond to recommendations from wage review bodies and would have to make choices about what to cut if they wanted to pay workers more.

In practice, this will force departments to make big compromises in the delivery of public services.

The Department of Health and Social Care has told the NHS pay review body it can afford a total pay of up to 3%.

Every 1 percentage point increase in wages for hospital and community health service staff would cost £900million – the equivalent of the salaries of 16,000 full-time nurses – and therefore make it harder to resolve treatment backlogs in elective care.

The Department for Education has said that every 1 percentage point increase in school labor pay will cut £350m from other spending over the next two years, meaning it would be more difficult for headteachers to hire new staff or help children make up for losses. learn from Covid-19 lockdowns.

A government official said the Treasury was “in denial” about the level of public sector wage settlements that were reasonable.

The official also contrasted the situation of key workers with pensioners, who are expected to see the basic state pension rise by around 10% next April as the increase is linked to inflation.

Sunak has made it clear that fighting inflation is not his only motivation for resisting more generous pay deals in the public sector.

At a cabinet meeting on Tuesday, he stressed the government’s responsibility to avoid any action that “would fuel inflationary pressures or reduce the government’s ability to cut taxes in the future”, a spokesman said.

Sunak has pledged to cut income tax in 2024, although Tory MPs are calling for faster action to help tackle the cost of living crisis.

Meanwhile, economists challenged the idea that intense public sector wage compression was necessary to control inflation.

“The Bank of England can handle inflation,” said Tony Yates, a partner at the Resolution Foundation, another think tank. “Wage policy should be set according to labor market conditions, i.e. with regard to recruitment, retention and motivation.”

Simon Wren-Lewis, a professor at Oxford University, argued in a blog post that because public sector wage increases were not directly driving consumer prices, “in this very simple sense, you simply cannot achieve a wage-price spiral in the public sector”.

Comments are closed.