The estimated cost of pay rises of 5.5% for teachers and certain NHS staff could reach £3bn, according to the Institute for Fiscal Studies…reports Asian Lite News
Independent pay review bodies have reportedly told ministers millions of public sector workers should be given a 5.5% increase in pay.
The proposed above-inflation increase for teachers and around 1.3 million NHS staff, reported by The Times, is well above the figure the government is thought to have been preparing for.
Keir Starmer’s government could need up to £10bn to cover such a pay increase if all public sector workers were given the 5.5% rise, an economist has warned.
There are more than 500,000 teachers in the UK.
At present, the government is believed to have budgeted for an increase of somewhere between 1% and 3%, with inflation currently at 2%.
Paul Johnson, the director of the influential Institute for Fiscal Studies, said he was “not terribly surprised” by the figure, which would be in line with pay rises across the economy and would cost an extra £3bn for schools and the NHS alone.
“In terms of the cost, there isn’t a specific number that is budgeted for schools, it’s probably 1 or 2%, it’s certainly nothing like 5.5%, so we’d certainly be looking at at least an additional £1bn on schools’ costs relative to what they’re currently expecting,” he told the BBC’s Today programme.
“And a number at least double that across the NHS if the proposals for the NHS are similar, which it appears that they might be.”
An increased pay rise could pose a significant challenge to Chancellor Rachel Reeves’s first budget, which is likely to come in the autumn. Labour had promised to control borrowing and ruled out a string of tax rises during the election campaign.
Schools and hospitals are unlikely to be able to meet the 5.5% pay rise from their existing budgets without making cuts elsewhere.
Asked where the money could come from, Mr Johnson said: “The answer is the same as the answer always is when asked: where can the money come from?
“It can only come from higher borrowing than they’re planning, higher taxes than they’re planning or cuts in spending elsewhere.
Ignoring the recommendations of pay-review bodies could result in strike action, according to Daniel Kebede, general secretary of the National Education Union.
Several different groups from the public sector have been involved in industrial action over pay in the last few years, including junior doctors who agreed to enter formal talks with with government last week in a bid to resolve their 20-month dispute.
A previous round of teachers’ strikes ended in July 2023 after union members accepted the government’s offer of a 6.5% pay rise.
Kebede noted the new Education Secretary Bridget Phillipson had “worked really hard” to improve relations with the teaching profession, but said: “It would be highly problematic for the Treasury to then intervene and then not implement a 5.5% pay award.
“We absolutely would want to avoid strike action, but that would almost seem inevitable if the Treasury were to make such an intervention.”
A government spokesperson said: “We value the vital contribution the almost six million public sector workers make to our country.
“The pay review process is ongoing, and no final decisions have been made. We will update in due course; however, we are under no illusions about the scale of the fiscal inheritance we face.”
The estimated cost of pay rises of 5.5% for teachers and certain NHS staff could reach £3bn, according to the Institute for Fiscal Studies (IFS). That would be significantly more than the 2.5-3% the Treasury had expected.
IFS director Paul Johnson said paying for such an increase would require the government to either increase borrowing or taxes, or cut spending elsewhere.
The most recent figures from the Office for National Statistics (ONS) put inflation at 2% in May and June – suggesting a pay offer above 2% would count as being above inflation.
But Johnson said on Saturday that the 5.5% figure was “roughly what pay is rising by across the economy”.
Traditionally, governments follow the recommendations of the independent bodies – but ministers are not obliged to stick to their suggestions.
Recommendations for other sectors are yet to be received, but the chancellor does plan to announce the settlements before the end of July.
eeves also told the BBC that the government will carry out a landmark review of pensions as part of a “big bang for growth”.
“People who make sacrifices and save every month to put something aside for their retirement, they deserve better than the returns they’re getting on those savings today.”
The chancellor also wants to change industry rules so that billions of pounds sitting in pension funds can be used more easily to invest in UK companies to stimulate the economy.
She continued: “If we could unlock just 1% of the money in defined contribution schemes – and invest that in more productive assets [and] fast-growing British companies – that’d be £8bn to help finance growth and prosperity and wealth creation here in Britain.
“That’s why there’s an urgency here from this government, unlocking that investment for our economy and delivering for working people who make big sacrifices but at the moment are being let down by the pensions industry.”
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