PA
After inheriting a difficult set of public finances from the previous government, Labour have been left with very little wriggle-room. However, it is understood that Keir Starmer is now likely to approve a set of above-inflation pay rises for public sector workers.
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As confirmed by The Telegraph, Sir Keir has budgeted around £3 billion for a pay rise of 3%, directed towards nurses and teachers. However, this would fall short of the current demands being made by unions.
An independent review has recently recommended that these wages should be increased by 5.5% – way above the current rate of inflation, which stands at just over 2%. However, implementing these changes would be easier said than done…
Should Starmer and his government elect for the higher pay rise, the costs could spiral to £10 billion. It’s money that is not freely available from the Treasury, and therefore, would have to be raised in the form of higher taxes, or spending cuts elsewhere.
A third option, according to the Institute for Fiscal Studies, would also be the possibility of higher borrowing. However, all three actions had been ruled out by Labour during their election campaign. Going back on their word could cost them credibility in the eyes of the public.
It’s also suggested that schools and hospitals would be taxed with cutting their own budgets, in order to make more headroom to higher wages. This, however, is a scenario that senior industry bodies are keen to avoid.
The Cabinet is desperately seeking to avoid strike action later in the year. Whether a 3% pay rise would be enough to quell the dissent remains to be seen. Even the suggested 5.5% salary hike could be rejected by union bosses in the weeks to come.
