Higher pay rises for public sector workers ‘would not be inflationary’

It flies in the face of government claims that pay increases in the public sector could not be funded by government borrowing because of the effect it would have on inflation.

Last month prime minister Rishi Sunak said that “Government borrowing is something that would make inflation worse, so the government has to make priorities and decisions about where best to target our resources.

"And that's why when it comes to public sector pay, we need to be fair, but we need to be responsible as well."

Last Thursday, Mr Sunak accepted recommendations from independent pay review bodies which recommended most public sector workers should receive pay rises of 6 per cent.

However, according to the IPPR, a 6 per cent increase would still leave the average worker in the public sector £1,400 worse off than they were before the pandemic because wages have not kept pace with inflation in that time.

The report adds that there would be even less impact on inflation if the £7.2bn needed to fund the pay rises came from taxation as opposed to borrowing.

Restoring public sector wages to their 2019/20 levels by increasing them 10.5 per cent is the only way to end all strikes, according to the report, and it would also help to recruit and retain key workers who are struggling with the cost of living.

There are currently 100,000 unfilled vacancies in the NHS in England, while recruitment into teacher training programmes is 40 per cent lower than the Department for Education’s current target.

Report author Joseph Evans said: “It’s wrong to claim that giving the public sector a more meaningful pay rise will further embed inflation. Research shows that there is very little inflationary impact from a significant pay rise, but that the need to stop the fall in living standards for public sector workers is urgent.

“Without an inflation-matching pay rise the public sector will continue to face a triple crisis of falling living standards, a recruitment emergency and declining quality of public services.”

Co-author and IPPR senior economist Carsten Jung added: “The government’s claim that by protecting public sector pay we would hugely increase inflation is a red herring. The analysis which the government itself cites shows that restoring real pay to pre-pandemic levels would have only a marginal impact on inflation.

“Addressing the workforce crisis in the public sector requires restoring decent pay. This will require funding it through higher and fairer taxation – which the government is shying away from.”

Last week, Chancellor Jeremy Hunt said the Government would take “difficult but responsible” decisions on public sector pay to tackle inflation.