Independent bodies that assess the pay of teachers and NHS workers have recommended above-inflation pay rises that could see the government raise up to £10bn more, according to a leading economist.
The bodies will recommend a 5.5% pay rise for the 514,000 teachers and around 1.3 million NHS staff they represent, according to according to the Times, well above the amount the government was reportedly preparing for. Such a move would pose an early challenge to Rachel Reeves’s fiscally regulated Treasury.
Paul Johnson, director of the Institute for Fiscal Studies, said he was “not particularly surprised” by the figure, which would be in line with pay rises across the economy and cost an extra £3bn to schools and the NHS alone.
He told the BBC’s Today programme: “In terms of costs, there’s no specific figure budgeted for schools, it’s probably 1% or 2%, it’s certainly not 5.5%.
“So we would certainly be looking at at least an additional £1 billion in costs for schools compared to what they currently expect, and at least double that for the whole of the NHS if the proposals for the NHS are similar, which appears to be the case.”
Johnson added that if the 5.5% rate were replicated across the public sector, it could mean the government would need to find an extra £10 billion.
A bigger-than-expected pay rise could pose a major challenge to Reeves’ first budget, likely to be tabled in the fall, after she pledged to keep borrowing under control and ruled out tax increases during the election campaign.
Schools and hospitals probably won’t be able to cover a 5.5% pay increase from their current budgets without cutting elsewhere.
When asked where the money could come from, Johnson said: “The answer is the same as it always is to the question: where can the money come from?
“It can only come from higher borrowing than they plan, higher taxes than they plan, or cuts elsewhere. There is no fourth option here.”
Failure to implement recommendations from wage review bodies, expected to be published this month, could trigger a conflict with unions representing the country’s 6 million public sector workers.
Daniel Kebede, secretary general of the National Education Union, warned that ignoring the wage review bodies’ recommendations could lead to strikes.
after newsletter promotion
He noted that the new Education Secretary, Bridget Phillipson, had “worked very hard” to improve relations with the teaching profession and said: “It would be very problematic if the Treasury then stepped in and did not implement a 5.5% pay rise.
“We would definitely like to avoid strikes, but that would seem almost inevitable if the Ministry of Finance were to intervene in this way.”
A government spokesman told the Times: “We value the vital contribution that our nearly 6 million public sector workers make to our country.
“The salary review process is ongoing and no final decisions have been made. We will provide an update in due course; however, we are under no illusions about the size of the fiscal legacy we face.”