Minister warns of cost of failing to strike public sector pay deal amid reports of proposed 5.5% hike

A Treasury minister has said there is a cost to not striking a deal on public sector pay in the face of reported proposals for inflation-busting wage hikes costing billions of pounds.

But speaking on Sky News’ Sunday Morning With Trevor Phillips, James Murray insisted the Labour government’s fiscal rules were “non-negotiable” as he refused to be drawn over whether his boss Chancellor Rachel Reeves would meet the floated increase of 5.5% recommended by independent pay review bodies.

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The proposed above-inflation increase for teachers and around 1.3 million NHS staff, reported by The Times, is well above the figure the government is thought to have been preparing for, costing in the region of £3bn.

Sir Keir Starmer’s government could need up to £10bn to cover such a pay increase if all public sector workers were given the 5.5% rise, according to economists.

At present, the government is believed to have budgeted for an increase of somewhere between 1% and 3%, with inflation currently at 2%.

An increased pay rise could pose a significant challenge to the chancellor’s first budget, which is likely to come in the autumn.

Labour had promised to control borrowing and ruled out a string of tax rises during the election campaign.

Schools and hospitals are unlikely to be able to meet the 5.5% pay rise from their existing budgets without making cuts elsewhere.

Speaking to the BBC, Ms Reeves said “people won’t have long to wait for a decision”.

She said: “There is a cost to not settling, a cost of further industrial action, and a cost in terms of the challenge we face recruiting

“We will do it in a proper way and make sure the sums add up.”

This was echoed by Mr Murray who told Phillips: “Let’s be clear that there is a cost, obviously, to the response, to the pay review bodies recommendations.

“But I think what the chancellor was saying is that there’s also a cost to not striking a deal, because you then run the risk of industrial action.

“There are longer term problems in terms of recruitment and retention of teachers, of people who work in the NHS and police officers and so on.

“So, you know, we need to set out our way forward.

“The proper process is to consider the pay review bodies recommendations and then set out our response in light of the public finances and the public spending inheritance.”

He added: “It’ll be within our fiscal rules. And as the chancellor has said, right throughout the campaign and absolutely in office, our fiscal rules are non-negotiable. And so the response will be within those parameters, but obviously the right way to do it.

“Again, the proper way of doing this is to look at the recommendations in the pay review bodies, and then to set out to parliament a response in the context of public finances.”

Ignoring the recommendations of pay-review bodies could result in strike action, according to Daniel Kebede, general secretary of the National Education Union.

Several different groups from the public sector have been involved in industrial action over pay in the last few years, including junior doctors who agreed to enter formal talks with with government last week in a bid to resolve their 20-month dispute.

A previous round of teachers’ strikes ended in July 2023 after union members accepted the government’s offer of a 6.5% pay rise.

Mr Kebede noted the new Education Secretary Bridget Phillipson had “worked really hard” to improve relations with the teaching profession, but said: “It would be highly problematic for the Treasury to then intervene and then not implement a 5.5% pay award.

“We absolutely would want to avoid strike action, but that would almost seem inevitable if the Treasury were to make such an intervention.”

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