Public sector pay rises: What government’s new offer means for strikes, budgets and inflation

The government has announced its pay offer for a swathe of public sector workers including teachers, doctors and police officers.

But questions remain about whether trade unions will accept the deals, and how they will be paid for.

Here are some of the key questions following the government’s announcement on Thursday.

Millions of public sector workers will receive pay rises of 6 per cent or more after the government accepted the recommendations of the eight independent pay review bodies.

Teachers will receive an increase of 6.5 per cent, junior doctors, consultants and dentists will receive 6% and police and prison officers will receive 7 per cent.

These awards apply to those working in England and Wales, with devolved administrations making separate offers to their staff.

Senior civil servants will receive an increase of 5.5 per cent, while military personnel are in line for an increase of 5-6 per cent, which will apply UK-wide.

But questions remain about how the increases will be funded, with some departments potentially facing a significant squeeze on their budgets.

Rishi Sunak and Jeremy Hunt have ruled out increasing taxes or borrowing to fund the pay rises, saying higher taxes would not be fair and higher borrowing would add to inflation.

Instead, Treasury chief secretary John Glen said the raises would be paid for “through a combination of the significant provision for pay that was made at the last spending review, greater efficiency and reprioritisation”.

Talk of “reprioritisation” suggests money will be taken from other parts of departmental budgets in order to fund pay increases, meaning cuts elsewhere.

As Mr Sunak put it: “If we are going to prioritise paying public sector workers more, that money has to come from somewhere else.”

For instance, Mr Glen told the Commons that the Ministry of Defence would cut back on civil service recruitment to fund the pay rise for the armed forces.

But Mr Sunak has been keen to avoid talking about cuts, saying: “It’s not about cuts, it’s just about focusing on public sector pay rather than other things.”

There will also be increases in charges for visa applications and the fees foreign citizens have to pay for using the NHS, which the Prime Minister said would raise more than £1 billion.

Whether the offer is enough to end the wave of strikes that have engulfed the public sector over the past year remains to be seen, but initial noises from some unions have been positive.

For instance, education unions have recommended their members accept the 6.5 per cent offer, which includes the extra funding for schools that the unions have called for.

But it is still below the rate of inflation, and union members could reject the offer given previous demands for an above-inflation increase.

Similarly, the 6 per cent offer to junior doctors in England falls well below the 35 per cent rise the British Medical Association claims is needed to make up for years of real terms pay cuts, and below the 12.4% offered to junior doctors in Scotland.

Some unions may also question the extent to which the increases can be funded from existing budgets.

But the government has been clear that these proposals represent a final offer and have called on all unions to end strike action.

The government has been reluctant to agree to significant pay increases for fear of pushing inflation even higher.

By avoiding additional borrowing, the government will hope to limit the impact of the pay rises on inflation as it will not result in more money being pumped into the economy.

Economists suggest that this approach will avoid exacerbating inflation, but private sector wages continue to rise faster than those in the public sector and could still make cutting inflation challenging.

Pay review bodies are independent panels that advise the government on pay for public sector workers.

The eight pay review bodies are each made up of between six and eight people, including sector experts, HR experts, economists and former trade unionists.

They cover pay for around 45 per cent of public sector workers, including members of the armed forces, NHS staff, prison officers, police officers, teachers and senior civil servants.

While the review bodies focus on salaries, they can also advise on other aspects of pay and conditions, including pensions, overtime arrangements, working hours and annual leave.

Pay review bodies look at a range of evidence when making their recommendations.

This includes submissions from trade unions and employers focusing on pay and retention, as well as formal offers from the government and their own research.

They also consider other factors set out in the remits they are given by the government each year. This can include the government’s inflation target, the amount of money departments have been given to spend overall, variations in labour markets and policies for improving public services.

The government’s ability to set the pay review bodies’ remits has led some to question whether they are fully independent.

The pay review bodies then make a formal recommendation to the government on pay levels, which can vary according to job type or seniority.

But ultimately, it is up to the government to set public sector pay levels and it is not bound to accept the pay bodies’ recommendations.