Easing the public sector pay cap hardly begins to meet the challenge of ending austerity

One of the first things Theresa May did, even before she became Prime Minister and while she was still a candidate in the Conservative leadership election, was to abandon George Osborne’s target of raising more money than the government spent within four years.

The euphoria over the “end of austerity” did not last, however. The stringency of the public finances formed the backdrop to the Conservatives’ poor showing in the surprise election in June.

Earlier this month the 1 per cent public sector pay cap – in effect an annual inflation-adjusted pay cut – was relaxed for prison officers and the police. Now we learn that Liz Truss, the Chief Secretary to the Treasury, has told the teachers’ pay review body that their pay can rise above the cap too, “particularly in areas of skill shortage”. She is believed to have sent a similar letter to the other pay review bodies, including the NHS Pay Review Body.

This is not so much a case of shutting the stable door after the horse has bolted, but of opening the door a crack to find the horse is too weak to run. Philip Hammond, the Chancellor, will have to do more in his Budget on 22 November to convince people that the Government really does understand the lives of the “just about managing”.

A tiny pay rise eked out from existing budgets is not going to deliver what people want. This is not just a question of fair pay for public sector workers – that is only a means to the end of better public services for all of us. That means more money needs to be spent on the overall budgets for the people’s priorities, above all the NHS, schools and anti-terrorism.

What is more, there are cuts to tax credits coming in as universal credit is “rolled out” – a bit of Whitehall jargon that makes the scheme sound like a giant ball coming to crush the working poor. Universal credit is a good idea being discredited by being brought in at the same time as deep cuts, mostly for people who are in work, trying to support themselves and their families. Cancelling those cuts just to preserve the status quo will cost billions already allocated in plans for the coming years.

On top of that, there is the challenge of the housing crisis, which needs government action and therefore public money to alleviate.

At the Labour conference this week Jeremy Corbyn was lauded for promising more public spending on pretty much everything except defence. Much of it would be lovely to have, but it has to be paid for, and it cannot all be found from asking “the rich and the big corporations” to contribute a little bit more.

Something is going to have to give, and we look to Mr Hammond to deliver a new settlement. He ought to raise taxes – on everyone, according to ability to pay. This will be difficult, but if he cannot do it now, after an election, when the economy is growing, then there may not be another chance and we will struggle on with ever more strained public services, more poverty in work and out of it, and still a sizeable deficit in the public finances.

Lifting the pay cap for the public sector, especially if it is paid for out of existing budgets, does not begin to match the challenge facing the country.