Experts have met the announcement of public sector pay rises with scepticism—not least because they could mean more cuts elsewhereby Dylan Bhundia / July 30, 2018 / Leave a comment
The magic money tree is shaken again. Last week, the government confirmed the scrapping of the public sector pay cap and subsequently pay rises for 1 million public sector workers. Teachers will receive a 3.5 per cent increase, the armed forces 2 per cent with a one off £300, prison workers 2 per cent with a one off 0.75 per cent, and junior doctors, specialist doctors, GPs and dentists 2 per cent. For these workers, it is their biggest pay rise in a decade.
But is all as it seems? Having been consistently told over the last 10 years that the economy is under immense pressure—and therefore that pay increases are unaffordable—how is it that suddenly the government can afford to fund a policy which will cost an estimated £4 billion?
Unlike with the NHS funding increase that was announced back in June, this came with no accompanying additional funding promise from the treasury. The official government statement said that the increases will be funded from “departmental budgets,” raising questions over whether these pay rises would be funded by cuts to services.
Economist and author George Magnus described this move as evidence of the “further unravelling of the government’s fiscal commitments” that will only “oblige departments to trim their cloth again”—a view shared by Leader of the Opposition Jeremy Corbyn.
With the issue of the national debt now off the political agenda, Magnus believes that what we are seeing here is the “primacy of political judgement over economics,” suggesting that perhaps the government is caving to political pressure to end austerity.
Ben Harris-Quinney, chairman of the conservative-leaning Bow Group, agrees. In rather frank terms, he alluded to the dangers of allowing short-term political gains to mask long-term fiscal commitments, saying that “cuts must fall elsewhere, or the next recession will make 2008 look mild.”
Even if the government can make the sums add up, there are questions over whether the policy goes far enough. Joe Dromey, senior research fellow at the IPPR, said that to many public servants “this is not a pay rise at all,” since pay rises for prison workers, doctors and the armed forces were below inflation. In this, he echoes Shadow International Development secretary Dan Carden, who has suggested the government has announced “what amounts to a real terms pay cut” and “then tried to sell it as a public sector pay rise.”
Vicky Pryce, chief economic advisor at CEBR and former joint head of the UK’s government economic service, said that the overall impression is “not a nice picture.” Pryce warned that we should expect “more demands and more increases” in pay, since the removal of the cap gave greater leverage for unions to demand pay increases for workers.
But it is the costing that troubles her most: “these pay increases… are meant to be coming from departmental underspend. One wonders how much of that is real.”
That seems to be the thought that has hijacked a policy which the Conservatives presumably thought would allow them to gain some much-needed points in the polls. Whilst Pryce wouldn’t be drawn into saying that it was merely an announcement designed for political gain, she did say that it was “odd timing.”
It appears that there is a consensus developing around this announcement. Largely, it surrounds the affordability of these promises, given the Conservatives commitment to “keep taxes as low as possible”, and continue to reduce the budget deficit.
However, with the latter now losing its political appeal, perhaps this government is beginning to loosen the fiscal straight-jacket that was so tight during the George Osborne era. Whilst Chancellor Phillip Hammond is a tenacious battler of the budget deficit, all the evidence appears to show that he will face some tough decisions in next year’s spending review to keep up his party’s image of fiscal responsibility.