Sometime in the next week or so the NHS and education pay review bodies are expected to recommend pay increases for millions of public sector staff.
It is widely expected that these review bodies will recommend pay rises of above the current inflation rate. If they did not, public sector staff would suffer a real decline in earnings as a result of their pay not increasing sufficiently to match the increase in the cost of living caused by the recent inflation.
It is also widely expected that the new government will say that these increases, likely to cost £10 billion a year, and increasing growth by that amount as a consequence, are unaffordable.
The consequence of the government doing that can easily be predicated. I think there will be widespread industrial action. The public will support the strikers. They will know that if they lose, so will they in pay negotiations with their employers, and a permanent upward redistribution of rewards in society from workers to employing bodies will have arisen as a result.
Will Labour be stupid enough to precipitate such a crisis so early in this government's life? I fear so. But if they do they can say goodbye to three things:
- Their honeymoon period
- Ever increasing the quality of public services
- Growth, because that is wholly dependent on people having enough to spend.
Is there anything about the political economy that they understand?
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Apparently it’s a test of their/his ‘virility’, Richard. See also not giving in to those pressing for the children of the undeserving poor to have to bear the burden of their ‘fiscal discipline’.
I gather that is the case
Basically a measure of how much of a bastard they really are
Comparing wage rises to inflation rates is a nonsense due to the time lags with which these things are determined. What the pay review body needs to do is compare wages today with wages in 2019 (pre-pandemic/war)…. and the same with prices. As a starting point, real (inflation adjusted) wages today should be the same as 2019.
But this is only a starting point. Recruitment and retention is a problem in many areas of public service and while I am not a neoliberal, free market fetishist it is clear that part of that problem is low pay… and this needs addressing.
I really hope that the Pay Review Bodies frame their recommendations in this way; I hope the government accepts them without reservation.
I agree, but I am not optimistic
Surprisingly – the signals from Reeves this morning is that she is not going to be as stupid as we have feared.
And equally surprisingly it is said that ‘Starmer has jumped on the ideas of Mariana Mazzucato and the work done by the institute she set up, the Institute of Innovation and Public Purpose (IIPP). ‘
https://uk.finance.yahoo.com/news/rethink-narrative-mariana-mazzucato-labour-163345150.html
How they deal with public sector pay was always going to be their first test – I it would not have been unexpected if Starmer would take this as his firs macho test – to face down ‘the unions’.
We might have to disagree on your first conclusion
Thank you for this so relevant article!
Over all the years that N H S and Education staff were deliberately underpaid, was/is there any account of the money « saved », in theory or in practice?
Impossible to answer that, I suggest. There are too many variables in the equation.
I think the fatal flaw of this government is and will be its members inflated sense of their own virtue and their delusional belief that this is sufficient to secure their grip on power. Considering the weak mandate, as opposed to majority, they have been given they should be implementing policies that will make a tangible positive improvement to ordinary people’s lives. They have a 18 months to 2 years window of opportunity to do this. Failing to grasp this opportunity will, assuming they come to any sort of realisation, leave them playing catch-up. I think that Starmer and the leading lights of this government will soon become widely despised. Emily Thornberry may well come to thank Starmer for her return to the backbenches as this shit show unravels.
@ TomC. The reason for this “shit show”? A coherent monetary theory is missing and consequently democracy will be undermined in in the UK. There will be an increase in rioting in poor communities!
I think you pointed out that of the £3 billion spend, a proportion would come back to the treasury in income tax, national insurance and VAT. Was it a third? Apart from the fact we need to keep teachers and health workers!!
With NIC and pension contributions, more
Let us assume the employee pays full NIC, and is a basic rate taxpayer. And by and large in the public sector we can ignore income tax or corporation tax deductions for the employer.
If there is a fixed amount of £100 to increase pay, 13.8% comes back as employer NIC from the £100 (so either you need £113.8 to increase pay by £100, or you increase pay by £87.87, so with the addition of employer NIC of £12.13 you get back to the £100 you have available).
Of that £87.87, basic rate income tax is 20% (£17.57) and employee NIC is now 8% (£7.02). So that is another £24.59 in direct tax.
After tax, from the £100, the employee takes home £63.28. So that is more than a third back to the government straight anyway.
If the employee buy anything that bears standard rate VAT – e.g. clothes, some food, many other products – a sixth of the sale price (20/120) is VAT. So that might be another £10.54 in VAT.
Just from the employment taxes and the first purchase bearing standard rate VAT, the government gets back £47.13. Substantially more if the person buys fuel for their car, or cigarettes. A bit less if they buy fruit and veg, or domestic gas and electricity, or pay rent.
Except of course that the payment is someone else’s income which is subject to tax in their hands, and they might use it to pay staff or buy other products, and so on with the government taking a little cut of tax here or a little slice of duty there each time.
Precisely
Spot on