The UK government’s refusal to improve the wage offer for public sector workers has led to a direct clash with unions, with a wave of strikes set to disrupt key services in the run-up to Christmas.

As nurses and ambulance crews prepare to join railway workers, postal employees and border officials on the picket lines, Prime Minister Rishi Sunak said the current offers were “reasonable and fair”, while ministers stressed they could not be more generous without jeopardizing public finances and fighting for Reduce inflation.

“It is high inflation that eats away at people’s wages and that is why the government must take the tough decisions needed to support the bank [of England’s] A Treasury spokesperson said, adding that any deviation from this would result in a “mission”. . . long-run economic growth”.

But economists say the pressure on public sector workers is a political choice, rather than a necessity – and that better paying NHS staff could bring broader benefits to the economy.

Are workers’ wages more in the private or public sector?

Average earnings excluding bonuses in the private sector rose 6.9 percent over the past year, according to The latest official data Too high for the Bank of England as it struggles to bring inflation back to its 2 per cent target. But public sector earnings grew just 2.7 per cent – trailing by one of the largest margins on record.

The government argues that this year’s pay awards, which vary by workforce but are in the region of 5 per cent, mark the highest rise the public sector has seen in 20 years. But the Treasury warned that those awards are higher than allowed under current spending plans, meaning next year’s reward could be lower.

Granting wages is well below the rate of inflation and comes after a long period in which austerity policies eroded the premiums public sector workers once enjoyed over their private sector counterparts. Research by the Institute for Fiscal Studies, a think tank, shows that public sector workers earn on average 3 percent less than their private sector counterparts in 2021, once bonuses are included.

They still do better overall if generous public sector pensions are factored in, but Ben Zaranko, chief economist at IFS, said this would be “a little consolation” in the current cost-of-living crisis, as they would have a lower take-home wage. Short term.

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As a result, the government loses workers to the private sector, where employers are more willing to raise wages in order to combat labor shortages and help employees deal with cost-of-living pressures.

Can the government afford the salaries of public sector employees more?

Jeremy Hunt, the finance minister, has argued that raising wages in line with inflation for all public sector workers would cost taxpayers around £28bn – or £1,000 per household.

This calculation assumes a wage increase of 11 percent in 2023-24, to expand the workforce as well as this year’s wage bonus.

Economists say this is misleading. Unions are sparring over a wage deal for this year, not next, and the government has already factored wage deals in the region of 4 to 5 per cent into its spending plans.

Zaranko said that if the government were to deliver a two-fold increase in wages in the current financial year, the extra cost to the Exchequer would be closer to £10 billion, given that workers would pay part of it in taxes.

However, any meaningful increase would not be within reach of current spending plans. The government has minimal leeway against its fiscal goals. “It has to be accompanied by higher taxes,” Zaranko said.

Will offering higher salaries in the public sector increase inflation?

In theory, wage deals to reduce inflation could lead to an increase in inflation. If the government offered workers double-digit wage increases without compensating them through higher taxes, it would pump more money into the economy, adding to inflationary pressures.

But public sector wages currently lag so far behind the private sector that there is little danger that the government will set any precedent for an inflationary increase in wages by firms.

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Tony Yates, an independent economist and former Bank of England official, said that if an increase in public sector salaries appears inflationary, the central bank can in any case offset it by raising interest rates. However, if the government finances higher salaries by increasing taxes, there will be no effect on inflation.

The real objection is the ideological, in particular the Tory’s no-brainer argument [a bigger state] In line with conservatism.

Will the rise of the public sector impede long-term growth?

The government’s argument against increasing public sector salaries ignores the fact that efficient public services bring greater benefits to the economy.

there Mounting evidence Staff shortages are making it difficult for the NHS to tackle long waiting lists and for schools to help pupils replace what was lost during coronavirus lockdowns. This has long-term economic effects that could outweigh the direct costs of the wage increase.

The real question for ministers is how much they will need to pay to recruit and retain the people needed to deliver the public services that voters want.

“There is a huge macroeconomic case for the NHS to sort out,” Yates said, referring to the record number of people who said they were not in the workforce due to long-term illness. “If the money can vanish into that . . . the net benefits may be very great indeed.”