The government’s 5 per cent pay offer to public sector workers was an attempt to address a host of pressing problems — staff shortages, looming strike action, rising inflation and the squeeze on household budgets — while still leaving the next UK prime minister enough fiscal firepower to cut taxes. In the event, it has pleased no one.
But the government’s partial concession to workers’ demands reflects the fact that market forces, as much as union activism, are now driving wage growth with inflation above 9 per cent and rising.
A worsening economic outlook has not yet taken the heat out of the UK’s labour market, with Office for National Statistics figures showing unemployment still below pre-pandemic levels, redundancies at record lows and vacancies — while nearing a peak — at a new high of 1.3mn.
Against this backdrop, many private sector employers have already been forced to raise wages sharply in order to recruit and hold on to staff. Business leaders giving evidence to MPs on Tuesday said pay awards were now running at 6 to 7 per cent, with many negotiating a mid-year increase to compensate workers for rising living costs, on top of the usual annual uplift.
The ONS data showed private sector pay grew almost five times as fast as that of public sector workers in the year to May, partly because businesses in many sectors — not just financial services — have been making freer use of one-off recruitment and retention bonuses.
“It is markets, not militancy, pushing pay higher,” said Tony Wilson, director of the Institute for Employment Studies, who notes that wages have risen fastest in sectors such as hospitality and IT where the number of vacancies has been highest — with the public sector lagging far behind.
Ministers’ decision to endorse pay deals for 2.5mn public sector workers averaging about 5 per cent reflects a recognition that such a big gap between the private and public sectors is no longer tenable — with recruitment problems worsening across key services and the threat of strike action looming.
The government claimed most overall pay awards in the public sector would be similar to those in the private sector, and argued that it could not have gone further without fuelling persistently high inflation, making people worse off in the long run.
But the furious response from public sector unions suggests that ministers have not gone nearly far enough to avert the threat of industrial action or to fix recruitment problems.
Union leaders described the pay deals for their respective members as “pitiful”, “disappointing”, “wholly inadequate”, a “grave misstep” and “a kick in the teeth”.
The British Medical Association said a 4.5 per cent pay rise for doctors who were not covered by existing multiyear pay deals represented a “brutal” real terms pay cut and “a betrayal of the profession”.
Even though pay increases will in most cases be more generous for workers at the bottom end of pay scales, the Trades Union Congress said the NHS settlement would cut hospital porters’ pay by £200 in real terms this year, nurses’ real pay by £1,100 and that of paramedics by more than £1,500. Frances O’Grady, TUC general secretary, said the award would “hit morale at a time when staff are leaving in droves and staff shortages are crippling vital services”.
But while the pay awards are not generous enough to defuse the anger felt by many public sector workers, they will cost enough — relative to previous plans — to leave public sector managers facing very difficult decisions, in the absence of any new money from the Treasury.
Ben Zaranko, economist at the Institute for Fiscal Studies, said existing spending plans could not readily accommodate 5 per cent pay awards — which would cost around £7bn more than previous plans — but that providing the requisite funding would be “clearly unattractive for a set of would-be prime ministers who all want to cut taxes”.
Geoff Barton, general secretary of the Association of School and College Leaders, labelled the pay award for teachers “the worst of all worlds” because teachers would face substantial real-terms pay cuts, while the higher wage bill would worsen already dire pressures on school budgets.
Anita Charlesworth, director of research at the Health Foundation, said the new offer to NHS staff meant trusts were presented with “a near impossible task for which they are set up to fail”, as they were already required to make big efficiency savings.
She also questioned the decision to focus pay awards on the lowest paid staff, saying this was understandable given the rising cost of living, but could make it harder for the NHS to retain more experienced staff.