Lids cannot be kept on boiling kettles forever. It was inevitable that the cap on public sector pay increases, in place in one form or another for seven years, would have to be lifted eventually and this week it has been.
But only for the police and prison officers and they are far from happy with what they’re being awarded because it still means a real pay cut. As for the rest of the 5.4 million workers in the public sector, they are up in arms, threatening coordinated industrial action, illegal if necessary, in support of a better deal. So should the cap be lifted across the board or is tight control still needed?
What has come to be known as ‘austerity’ has taken many forms but one of the most controversial has been the cap on public sector pay. It was first introduced by the new Tory-led coalition government in 2010 as a means of helping restore the health of public finances devastated by the aftermath of the financial crisis of 2008. Initially it took the form of a two-year freeze on public sector salaries over £21,000 a year. From 2013 this was slightly eased to allow 1% increases in cash terms.
This regime was supposed to carry on but this week the government announced a partial breaching of it. Prison officers are to be awarded a 1.7% increase in pay and the police a 2% increase, although half of this will be in the form of a one-off bonus. The government was forced into this concession in part because of problems recruiting and retaining staff. Liz Truss, the chief secretary to the Treasury, said: ‘The government recognises that in some parts of the public sector, particularly in areas of skill shortage, more flexibility may be required.’ The Cabinet has also come under political pressure, including from its own MPs, to do something to help workers who have seen their real standards of living fall far more than had been expected.
That is because inflation has been rising much faster than forecast. Back in 2015 it was expected that by now inflation would be running at around 1.7%. But on the very day the government announced its award for the police and prison officers the official rate had risen to 2.9%. In part this is the result of the sharp fall in the value of sterling following the vote to leave the European Union. It means that a 1% increase in money wages actually implies a cut in real pay.
That’s why the response of the police and prison officers was less than ecstatic. Frances O’Grady, the general secretary of the TUC, speaking at its annual conference in Brighton, said the move was ‘pathetic and derisory’. Mark Serwotka, general secretary of the Public and Commercial Services Union, was more outspoken, calling the deal ‘a pile of crap’.
Workers elsewhere in the public sector will have to wait to find out what the government has in mind for them, but they know already what they want. They are demanding a 5% increase across the board and they appear to have the support of Jeremy Corbyn, the Labour leader. He said that if he were the prime minister he would scrap the cap and ‘give all workers the pay rise they deserve’.
The problem, of course, for any government is finding the money to pay for wage increases. The difficulty is highlighted by the case of the award to the police and prison officers. The government has insisted there will be no new money to finance the award and that the cash will have to be found from existing budgets. But the budget of the Ministry of Justice (which has responsibility for prison officers) was cut by 27% in real terms between 2010 and 2016 and is already expected to be cut by a further 17% by 2019. Spending on the police was cut by 14% in real terms between 2010 and 2014 and although its cash budget has been protected till 2019, the effect of inflation will be to produce an 8% real cut.
The independent Institute for Fiscal Studies has estimated that if all public sector workers were given a 2% pay increase (still implying a real pay cut) and the money were to be found from existing budgets, then around 50,000 jobs would have to go in order to balance the books.
Obviously such an outcome could be avoided if new money were to be found, but how much would be needed? It’s been calculated that if all public sector workers were to have a pay rise of 2.9% (so merely avoiding a cut in real incomes measured against the current rate of inflation), the cost to the Treasury would be about £6bn. Given the continuing relatively high level of government borrowing, ministers would be wholly opposed to financing the award through more government debt, and a party committed to low taxation would resist raising the money through higher taxes. They’d likely argue that, in any case, tax rises would hit those who were supposed to be being helped with the pay increase (though Labour would no doubt argue it could raise in other ways).
So it’s highly unlikely the government is going to go anywhere near conceding the unions’ case. Indeed Philip Hammond, the chancellor, justifies the cap on grounds of fairness, arguing that immediately after the financial crisis private sector workers were hit far more savagely than public sector workers and that the cap has helped restore the relationship between and public and private sector pay broadly to what it was before the crash. He argues too that if public sector pensions are taken into account, the average public sector worker is 10% better off than the average private sector worker.
These arguments are unlikely to wash with the public sector unions. They are promising a campaign of coordinated action to get their way and seem ready for that action to be illegal, if necessary. Since earlier this year, trade union law has required at least 50% of union members eligible to vote in a strike ballot to turn out for any strike to be lawful even if a clear majority of those who do vote, vote to strike. In certain vital services such as health, education and transport, there is an additional demand that at least 40% of those eligible to vote must vote for action for it to be lawful.
But union leaders view these high hurdles with contempt. Len McCluskey, the general secretary of Unite, said: ‘I will support our members. If that means we are outside the law, then so be it. The reality is that the law is wrong and it has to be resisted. I dare say if you’d been interviewing Nelson Mandela or Mahatma Gandhi or the suffragettes you’d be telling them that they were breaking the law.’
It seems, then, that we are heading for a big confrontation. Do you think the union demand for an across-the-board 5% pay increase is justified or not? If not, what do you think is justified? How far, if at all, do you think the government should go to meeting union demands? Do you think the government is right to fund any pay increases out of existing budgets? If not, how do you think they should be financed? Do you think the unions would be justified in taking illegal action in support of their claims? And do you think the law on what makes strikes legal or illegal is justifiable or not?
Let us know what you think.