Will the government give in to public sector demands for higher pay?

With review boards recommending pay rises for teachers and NHS staff, a hard-up Labour government could face a summer of discontent, writes Sean O’Grady

NHS staff on strike in August 2023 (Getty)

With apologies for dropping such a clangingly awful cliche, but are we in for a… summer of discontent? Reports suggest that the pay review boards for teaching and NHS staff have completed their annual deliberations. They are recommending pay rises for these two groups of around 4 per cent and 3 per cent respectively. But the government has only budgeted some 2.8 per cent extra in each case, leaving the gap – a substantial one given the numbers of staff involved – to be found from existing budgets. The unions have threatened strike action…

Does the government have to pay the awards?

No, but there is an almost contractual expectation that any government will. That’s because these pay review bodies, ironically given the recent record, were designed to take industrial action out of the process of setting pay in vital public services.

The idea was, and is, that conventional free collective bargaining between the unions and employers (ie ultimately the government) is replaced by referring the issue to “pay review boards” – committees of professional experts and economists who take evidence from interested parties, assess supply and demand, and make a recommendation. In return, the unions and government agree to abide by the review board’s decision.

The extreme example is the armed forces: they cannot strike by law, but in return, there is no question of dishonouring the Armed Forces’ Pay Review Body.

But isn’t the government actually accepting the review boards’ soon-to-be-announced recommendations?

It is, formally speaking, but this is where it gets tricky, because it isn’t fully funding the prospective pay rises – some of the cash will have to be found elsewhere, from schools and the hospital system. So the National Education Union (NEU) and National Association of Schoolmasters Union of Women Teachers (NASUWT) say they’ll take industrial action if schools don’t get extra discretionary funding. The Royal College of Nursing (RCN) has also warned it will not accept pay awards taking resources from the front line.

What about whether the country can afford the increases?

That’s always going to be a matter of opinion in any case. You could argue that the UK cannot afford not to have, say, maths teachers and geriatric nurses – and at a time of labour shortages, the government has to pay to get them.

In terms of the process, the government of the day always makes a submission to the relevant review body and that represents its opportunity to make the case for “affordability” in terms of the state of the economy and public spending priorities.

Didn’t the last government ignore the pay review bodies?

Sometimes, and that’s why we had lots of strikes, not least on the railways. If a government reneges on the implicit understanding that a union gives up its right to strike in return for agreeing to whatever a pay review body comes up with, then it will feel doubly emboldened to go on strike if ministers break their side of the bargain – and strikes cause real damage to the economy and the public finances. Sometimes it’s cheaper to settle, which is what Rachel Reeves did with the railworkers and nurses after the last election.

What does the government say?

For the moment, it is determined not to budge or borrow to fund new awards: “Unlike previous governments, we are not going to go and get more money from markets to pay for these things.”

What will happen?

The government will, out of necessity, be more determined to resist fully funding the pay increases because recent downgrades to UK economic growth forecasts, and thus tax revenues, mean Reeves has even less room for manoeuvre if she wants to stick to her fiscal rules about borrowing, which she does. She is obviously also reluctant to raise taxes again to fund pay increases. In more purely party political terms, she will also be conscious that the Conservatives and Reform will attack her for “caving in to her union paymasters” and “wasting” taxpayers’ money on “bumper” pay rises, or some such. The upshot may be that, before long, she and Keir Starmer will be suffering more strike action than even Rishi Sunak and Jeremy Hunt had to deal with.

For this Labour government, things can’t necessarily only get better.