'There's also a cost to no deal': Treasury minister hints at above-inflation pay rise for public sector workers

21 July 2024, 12:00 | Updated: 21 July 2024, 12:32

James Murray on the 5.5% pay rise for teachers and nurses

A Treasury minister has hinted that public sector workers, including teachers and nurses, could receive a recommended 5.5% pay rise.

Independent pay review bodies, representing 514,000 teachers and 1.36 million NHS workers, both recommended the above-inflation pay rise as it is in line with increases in private sector pay.

It is a big jump from the three per cent the government has budgeted for, creating a further challenge for Rachel Reeves ahead of her first budget.

But speaking to LBC, Treasury minister James Murray said there would be a cost even if the government does not strike a deal.

"The response to the recommendations involves a cost but as the Chancellor made very clear, there’s also a cost to not striking a deal," he said.

"There is a cost in terms of further industrial action, in terms of difficulties recruiting and retaining public sector workers and so there’s a cost to not getting a deal agreed as well.

"There is a process. By the end of July, [Ms Reeves] will come to Parliament and set out our response and that’s what she’s considering at the moment."

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Economists have warned £3.5 billion extra will be needed to fund teachers and nurses alone, potentially meaning more tax rise, spending cuts or increased borrowing.

When asked how the government would fund the pay rise, Mr Murray said "it is a difficult inheritance" but Labour would stand by its commitments to not raise income tax and VAT.

"The Chancellor will set out all tax policy at the budget in the normal way but we're very clear that it’s a very difficult inheritance and it means some tough decisions," he said.

"The position that we’re in is very constrained by the state of public finances."

How tough should the new Health Secretary be in negotiating NHS pay disputes?

Keir Starmer previously said that he is ready to face down the demands of unions.

Speaking during his first week as PM, he said: “The finances are in a very poor state.

“I think that is obvious. And that’s why we’ve been careful in what we said going into the election and we’ll be careful what we say coming out of it.”

But the ongoing pay dispute could result in more industrial action in coming months.

Union leaders have warned of a "big row" if they are offered less, with it also likely to impact the government's attempt at resetting relations with them.

Other public sector workers, including doctors, dentists, civil servants and police, are expected to see similar recommendations.

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Certain frontline workers have been calling for an above-inflation rise after they were forced to settle for a 5 per cent pay rise last year - despite some senior doctors getting up to 19 per cent and junior doctors being in talks for 12 per cent.

"5.5 per cent is better than we thought and you’d struggle to argue against it,” one health union source told the Times.

"But if the government offered less than that we would get angry. They would really struggle to justify deviating from the independent process.

"It would get things off to a very bad start and the constructive spirit of working together that you could get with a new government would very quickly fall away. Ultimately, they need to find the money or have a big row with the unions."

A government spokesman said: "We value the vital contribution the almost 6 million public sector workers make to our country.

"The pay review process is ongoing, and no final decisions have been made.

"We will update in due course; however, we are under no illusions about the scale of the fiscal inheritance we face.'