Public sector pain

The ‘New Winter of Discontent’. The government is facing a wave of public sector strikes this Winter with nurses, border force staff, DWP officials, ambulances workers and more joining rail workers, postal workers and others who have walked out over pay disputes. (For a useful explainer on recent strikes, read Anoosh Chakelian’s myth-busting piece for the New Statesman.)

• Political row over nurse pay. One key flashpoint is the strike from the Royal College of Nursing (RCN), where nurses taking part in unprecedented industrial action and are demanding pay rises 5% above RPI inflation to compensate for below inflation pay increases in the 2010s. (See the TUC’s analysis of how much NHS staff have lost from a “brutal decade of lost pay”.) The RCN say NHS pay announcements have left nurses 20% worse off in real terms compared to a decade ago. The government is offering pay increases of 4.75% to nurses despite RPI inflation forecast to hit 14% - a huge real pay cut. Conservative backbenchers such as Caroline Nokes and Jake Berry have urged the government to reevaluate their stance and improve their offer on nurses pay. (See Ipsos polling on public support for striking nurses.) The government’s case against the strike action has three main components, with ministers arguing that the pay claims are unaffordable, that they cannot override independent pay review bodies, and that pay rises will fuel further inflation. 
• Misleading costings. On the first point, the government has been accused of misleading the public, arguing that an inflation-matching pay rise for all public sector workers would cost £28bn - £1,000 per household. The IFS says the cost is actually more like £10-14bn once increased revenue from tax receipts is factored in and because some of the increase has already been promised by the government. Economist James Meadway explains how the actual costs (of around £12bn) are affordable within existing government budgets due to falling borrowing costs, or could be funded through tax increases in his latest Macrodose podcast.
• Independent PRB? On the second point, the role and ‘independence’ of Pay Review Bodies in the public sector is coming under greater scrutiny, with unions making the point that these bodies operate under a mandate set by central government. PRB’s operate make their recommendation based on two criteria, recruitment and retention needs (more on this later) and affordability, with the second having primacy. The affordability constraint is determined with reference to central government budgets, in this case the 2021 Spending Review which had allowed for pay rises of 2-3% based on inflation running at 2-4%, and PRBs are highly reluctant to recommend unfunded pay rises above these levels. While not directly comparable, central government’s insistence that it has no role on pay, while holding the purse strings, is analogous to their role in the rail dispute and is one of the central barriers to meaningful pay negotiations. (As an aside, the government are now arguing that they will instruct the NHS PRB to take a greater account of staffing pressures and recommend higher rises next year, which rather undermines their point about independence).
• No risk of wage-price spiral. The final plank of the government’s argument is that pay rises would drive inflation, but this line is also crumbling. David Smith, Economics Editor at the Sunday Times notes: “There is little danger that higher public sector pay settlements would trigger a wage-price spiral. Rather, it would be public sector pay catching up”. According to the IfG, the NHS Pay Review Body essentially concluded that its recommendations were not meaningfully constrained by the government’s inflation target, saying: “As earnings growth remains substantially below inflation, we judge that increases in earnings present a much lower risk to increasing the rate of inflation compared to some of the other fundamental drivers.” (Read the IMF’s recent paper suggesting fears of wage-price spirals are not supported by empirical evidence.)

Public services, recruitment and retention. The primary context for these public sector strikes is clearly high inflation and the cost of living crisis, but it is also impossible to ignore the role that persistent pay constraint has had on public sector recruitment, retention, and morale over recent years. Public services, and the NHS in particular, are suffering from growing vacancies and skills shortages. IPPR’s Parth Patel explains that pay increases are crucial for maintaining NHS performance in an interview with Sky News. For instance, there are currently 47,000 nursing vacancies and around 1 in 3 public sector workers have taken steps to quit their profession or are actively taking steps to do so, with the majority citing low pay as the decisive factor. Without pay increases, public services will deteriorate. (The TUC analysis also found that nearly 1 million children in key worker households are growing up in poverty.)

• What is the government planning instead? The government is currently working on a workforce plan for the NHS, but it is an open question how they plan to fill growing vacancies without fair pay increases relative to the private sector. TUC analysis shows pay in the public sector has fallen much faster than in the wider economy (£180 in real terms compared to the same month last year, and with pay falling by £76 in the wider economy). Martin Wolf explains why “Letting inflation reduce real wages while expecting services to be maintained is dishonest…The government should keep pay in line with the private sector’s, especially where it has significant recruitment and retention problems. If this means it has to reopen spending plans that no longer make sense in today’s debased pounds, so be it.”
• Nurses not non-doms. Meanwhile Labour has launched its own NHS campaign, pledging “one of the biggest expansions of the NHS workforce in history”, with thousands of new training places for doctors and nurses, funded by the abolition of the non-dom tax status. (For more on non-doms read this by CAGE’s Arun Advani).
• Theory of the strike. It is partly for this reason that the FT’s Stephen Bush questions whether the Sunak government has thought through its theory of how to win this industrial dispute. Even if the government manages to grind public sector workers down over this pay offer, it will still be left with huge recruitment and retention issues, a further demoralised and under-funded workforce, and the consequences of this for public service delivery. Without a serious plan for dealing with these issues, and with the public largely taking the side of the workers, it is hard to avoid the impression that the government is locked in a losing battle with no exit strategy.

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Strikes expected to become the norm. What does the future hold for industrial action in the public sector? We can answer this partly by looking at the overall spending envelope going forwards. In the Autumn Statement last month, Chancellor Jeremy Hunt committed to the departmental budgets outlined in the 2021 Spending Review (with some exceptions). This was based on outdated inflation predictions, and locks departmental budgets until 2024/25. After this there will be even greater pressure, as departmental budgets are set to be squeezed again. In summary, the Institute for Government concludes that: “the reality is that from this year services are unlikely to see further large budget increases to deal with poor performance and an increasing share of their budgets will need to be spent on higher pay awards to keep services functioning”. 

• “Get used to them”. Resolution Foundation’s Torsten Bell highlights that, while we are still a long way away from the scale of strikes seen in the 1970s, we should “get used to them”, as “Workers and firms are contesting who pays what part of the cost of Britain becoming poorer, and strikes are what that looks like.”
• If you can't beat them. The government plans to bring in new laws to restrict Trade Unions’ right to strike following proposals for allowing agency workers and soldiers to replace striking workers in key sectors (see our previous Digest). Last week 11 trade unions were granted permission for a legal challenge against strike breaking in the High Court.
• Funding pay increases to rebuild public services. Ahead of the mini-budget, the TUC called on the government to invest an additional £43bn in public services to deliver a cost-of-living proof pay rise for public sector workers and protect budgets from the impact of inflation. NEF’s analysis calculates the funding shortfall against the 2021 Spending Review commitment for the Departments for Health and Social care, Education, Justice and the Environment, Food and Rural Affairs. Separately, NEF has advocated using taxes to capture growing wealth of the UK’s billionaires to fund vital infrastructure and public services.