Line chart of UK real average weekly earnings (total pay, including bonuses, 2010=100) showing public sector wages in real terms are well below 2010 levels

UK is considering 5% pay rise for public sector workers

Government insiders say pay deals for UK public sector staff could rise by as much as 5 per cent this year as ministers try to stave off widespread strikes by key workers.

Amid the escalating cost-of-living crisis, ministers find it increasingly unsustainable to keep public sector wage agreements – particularly for nurses and teachers – within their target range of 2-3 per cent.

But the Treasury is refusing to fund more generous pay deals, meaning Whitehall departments would have to find the money for 5 percent severance pay from existing budgets.

A government adviser said the independent pay review bodies – which make recommendations to ministers on how to pay teachers and health workers, police and prison staff, civil servants and the armed forces – are expected to recommend pay rises of typically “one or two percentage points” above that in the next few weeks Cap of 3 percent, implying premiums of 5 percent, at least in some cases.

If ministers accept the recommendations, “unless things change, these increases must still come from efficiency gains, rather than the Treasury handing over more funds,” the adviser added.

Prime Minister Boris Johnson and Chancellor Rishi Sunak have argued that big pay rises in the public sector would be both prohibitive and inflationary amid Bank of England fears of a so-called wage-price spiral.

But a Cabinet minister said: “If we don’t push for 5 percent on some of those [pay] Deals we risk one strike wave after the other.”

The Minister added Downing Street was mainly concerned about pay rises for nurses and teachers “which are probably the biggest headache cause”.

The Treasury said any pay rises in the public sector “must be proportionate and balanced to deal with inflationary pressures and public sector finances”.

With inflation at 9.1 percent, a 40-year high, opinion polls suggest rising public anger at the government’s proposal that key workers should suffer a major pay cut.

“Inflation is not being driven by nurses who want enough wages to keep food on the table,” said Frances O’Grady, secretary-general of the Trades Union Congress.

Most UK workers face real wage cuts this year and the BoE is forecasting inflation to hit 11 percent in October.

However, public sector employees have already suffered a major slump: on average, their real wages are already around 4.3 percent below the 2010 level.

Recent official data shows that employee wages have risen by just 1.5 percent in nominal terms over the past year, in contrast to an 8 percent average growth in total wages in the private sector.

Bar chart of nominal monthly wage growth by position in the income distribution in the UK, %, showing that top earners have experienced the strongest wage growth over the past two years

Against this backdrop, the UK’s biggest rail strikes in a generation began on Tuesday as 40,000 RMT union members pulled out over wages, labor practices and redundancies. Many are employed by the state’s Network Rail, which operates the infrastructure.

Now the unions of teachers, junior doctors and civil servants are preparing to vote with members on possible industrial action if their wage demands are not met.

But despite the risk of widespread industrial action, Sunak is resisting pressure from Whitehall departments to resume last year’s spending review to fund better wage deals.

The Chancellor unveiled £15billion in targeted support last month to help households facing rising living costs, which the Institute for Fiscal Studies has calculated will almost entirely offset the impact on the poorest families.

But with this support, the Treasury Department is cracking down on further demands.

Although higher inflation is likely to boost government tax revenues, Sunak’s allies said there would be no extra funding for Whitehall departments to help them cope with wage pressures.

Britain's Chancellor Rishi Sunak pictured in May

British Chancellor Rishi Sunak’s allies said there would be no extra funding for Whitehall departments to help them cope with wage pressures © Reuters

They added departments would have “flexibility” in responding to recommendations from pay review bodies and would have to make decisions about what they would cut if they wanted to pay workers more.

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

The Department for Health and Social Care told the NHS Salary Verification Body it could afford up to 3 per cent in total pay.

Every 1 percentage point pay increase for staff in hospitals and community health services would cost £900m – the equivalent of the salaries of 16,000 full-time nurses – and would therefore make it harder to deal with backlogs in elective care.

The Department of Education said that every 1 percentage point increase in school staff salaries over the next two years would save 350 million learners from Covid-19 lockdowns.

A government official said the Treasury Department is denying the level of adequate public sector wage payments.

The official also contrasted the situation of key workers with retirees, whose basic state pension is expected to rise by about 10 percent next April as the increase is linked to inflation.

Sunak has made it clear that curbing inflation is not his only motive for opposing more generous wage settlements in the public sector.

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

Sunak has pledged to cut income taxes in 2024, despite Conservative MPs calling for quicker steps to help with the cost-of-living crisis.

Meanwhile, economists questioned the idea that severe pressure on public sector wages was needed to control inflation.

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

Simon Wren-Lewis, a professor at the University of Oxford, argued in a blog that because public sector wage increases do not directly boost consumer prices, “in that very simple sense, a public sector wage-price spiral simply cannot emerge.”

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