Reeves hints at significant wage increases for public sector workers, potentially creating an £8 billion fiscal gap.
- Pay review bodies have advised a 5.5% salary rise for teachers and NHS staff.
- Conservative ministers delayed action on these recommendations until after elections.
- Former Chancellor Jeremy Hunt’s modelling estimated an additional £8 billion cost if wage recommendations are implemented.
- Reeves criticised the previous government’s inaction during an interview on BBC.
Two pay review bodies have recommended a 5.5% wage increase for 460,000 teachers and 1.4 million NHS staff under the ‘agenda for change’ framework. These recommendations were submitted prior to the elections, but Conservative ministers deferred any action until post-election.
The UK employs eight independent pay review bodies that cover around half of all public servants, including the police, prison service, armed forces, and civil servants. Although their recommendations are advisory, they are frequently adopted.
According to sources, the pay suggestions for other sectors are likely to mirror those for teachers and NHS staff. Private modelling by the Treasury, under former Chancellor Jeremy Hunt, assumed a 6% increase for ‘agenda for change’ staff and a 5% rise for other public sector workers. These increases would result in an additional £8 billion expenditure.
Reeves indicated the possibility of accepting the pay recommendations during an interview with BBC’s Laura Kuenssberg, whilst also emphasising the need for fiscal responsibility. She highlighted various costs associated with not resolving the issue, including industrial action and recruitment challenges. She criticised the former Conservative government for postponing crucial pay decisions, particularly former Education Secretary Gillian Keegan.
Jeremy Hunt defended the previous government’s decisions, arguing that fiscal balance could be achieved without raising taxes if Labour reformed welfare and controlled public sector pay. Nevertheless, the Resolution Foundation cautioned that the new government faces a potential £12 billion fiscal hole, which could rise to £33 billion if protective measures for areas like police and local government are maintained.
In the event of implementing these pay rises, Reeves might have to consider spending cuts or tax increases to mitigate the fiscal impact. Alternatively, offering lower wage increases could provoke backlash from trade unions and lead to strikes. Ministers are actively negotiating with junior doctors and rail unions to find resolutions.
Education Secretary Bridget Phillipson recently communicated to teachers that immediate action on pay recommendations was not feasible, despite pressure from unions. School leaders have also voiced the need for additional funding to meet pay recommendations, with a National Governance Association survey revealing that 60% of schools cannot balance their budgets.
Teaching unions have voted for strike action over pay grievances, asserting that real-term wages have fallen since 2010. The National Education Union (NEU) has postponed formal strike action pending the September pay offer, with the General Secretary Daniel Kebede stressing the need for substantial pay rises to address recruitment and retention issues. Nurses are also in ongoing disputes over pay after receiving a 5% rise last year. Concerns within Labour indicate nurses received lower percentage increases compared to consultants and junior doctors, who have continued striking.
A government spokesperson reiterated the importance of the contributions made by nearly six million public sector workers and stated that the pay review process is ongoing without any final decisions yet. In the same BBC interview, Reeves dismissed revising the two-child benefit cap due to its £3 billion annual cost.
Reeves’ consideration of pay rises for public sector workers presents significant economic challenges, requiring careful balance between fiscal responsibility and fair compensation.
