Double-digit pay rises for workers would not be inflationary, experts says

17 July 2023 , 23:01

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Nurses, teachers and junior doctors have all been among those to strike over pay in the latest wave of industrial action (Image: Thomas Krych/ZUMA Press Wire/REX/Shutterstock)

Double-digit pay rises for public sector workers would not be inflationary, a think tank report says today.

A 10.5% salary boost for public sector staff would add 0.14 percentage points at most to inflation if funded by borrowing, new analysis by the progressive Institute for Public Policy Research found. It would have no impact on price rises if funded by taxation, the centre-left think tank adds.

Rishi Sunak announced last week that millions of public sector workers would get pay rises around 6%, but a 10.5% increase is what is needed to restore wages to the level they were in March 2020.

But the IPPR’s report found public sector workers would still be £1,400 worse off this year on average than just before the pandemic if they were to receive a pay award around the 6% announced last week.

Rishi Sunak announced last week that millions of public sector workers would get pay rises around 6% but it still does not restore wages to what they were in 2020 (Derby Telegraph)

The think tank says a 10.5% pay rise is the only way to end all strikes and better recruit and retain key workers. This would cost an additional £7.2billion on top of the extra money committed last week, which the IPPR says could be raised through a wealth tax, re-introducing the national insurance rise and equalising rates on capital gains and income from work.

Teachers, civil servants and train drivers walk out in biggest strike in decade

It adds that politicians should commit to raising public sector pay faster than inflation every year for the next five years. The Government has consistently said large pay rises for public sector staff would make it more difficult to bring inflation down.

Report author and IPPR researcher Joseph Evans said: "It's wrong to claim that giving the public sector a more meaningful pay rise will further embed inflation. Research shows that there is very little inflationary impact from a significant pay rise, but that the need to stop the fall in living standards for public sector workers is urgent.

“Without an inflation-matching pay rise the public sector will continue to face a triple crisis of falling living standards, a recruitment emergency and declining quality of public services."

Senior economist at IPPR and one of the report’s authors Carsten Jung said: “The government’s claim that by protecting public sector pay we would hugely increase inflation is a red herring. The analysis which the government itself cites shows that restoring real pay to pre-pandemic levels would have only a marginal impact on inflation.

“Addressing the workforce crisis in the public sector requires restoring decent pay. This will require funding it through higher and fairer taxation – which the government is shying away from.”

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Sophie Huskisson