Proposed 5.5% Pay Rise for Public Sector Workers Poses £10bn Challenge for Starmer’s Government

Reports indicate that ministers have been advised to implement a 5.5% salary increase for millions of public sector employees. An economist has cautioned that Sir Keir Starmer's administration may require as much as £10 billion to fund the increase should it be extended to all public sector workers.

Saturday, July 20, 2024, 3:

According to sources, advisory panels have recommended to government officials that public sector employees be granted a 5.5% salary raise.

According to The Times, the government is considering a pay raise for teachers and approximately 1.3 million NHS staff that exceeds inflation rates, a move that surpasses what was initially expected.

An economist has cautioned that Sir Keir Starmer's administration may require as much as £10 billion to fund a 5.5% salary hike for all public sector employees.

The UK is home to over half a million teachers.

Currently, it is understood that the government has allocated a budget increase in the range of 1% to 3%, while the inflation rate stands at 2%.

Paul Johnson, head of the prominent Institute for Fiscal Studies, expressed that he was "not terribly surprised" by the statistic, noting it aligns with salary increases across the board and would result in an additional expenditure of £3 billion for schools and the NHS alone.

"Regarding the financial aspect, schools don't have a set budget allocation, but it's likely around 1 to 2%—definitely not close to 5.5%. We're anticipating that schools will need at least an extra £1 billion compared to what they're currently projecting," he explained on the BBC's Today programme.

"Furthermore, this figure could potentially double across the NHS if the suggestions for the NHS are akin to those proposed, as they seem to be."

A substantial pay increase might present a major difficulty for Chancellor Rachel Reeves as she prepares her inaugural budget, expected in the fall. During the electoral campaign, Labour committed to keeping borrowing in check and dismissed the possibility of numerous tax hikes.

Educational institutions and medical facilities will likely struggle to accommodate a 5.5% increase in salaries without reducing funding in other areas.

Explore further with Sky News: Air travelers endure 'nine-hour delays' following worldwide IT failure. Bridge disaster in China – president commands full-scale emergency response. The 'new axis powers' – what is the level of concern?

What are the possible sources of funding?

When questioned about the potential source of the funds, Mr. Johnson responded, "The response remains what it always is when this question is posed: where can the money come from?"

The only sources for this funding would be increased borrowing beyond what they have forecasted, raising taxes higher than anticipated, or reducing expenditure in other areas.

"A third option does not exist."

Stay informed on the most recent updates from the UK and globally by tuning into Sky News.

Risk of labor strike

Daniel Kebede, the general secretary of the National Education Union, has warned that disregarding the suggestions of pay-review panels might lead to strikes.

In recent years, numerous public sector organizations have participated in strikes concerning salary issues. Last week, junior doctors decided to commence official negotiations with the government, aiming to settle their dispute that has been ongoing for 20 months.

A prior wave of teachers' strikes concluded in July 2023 when union members agreed to a 6.5% salary increase proposed by the government.

Mr. Kebede observed that the new Education Secretary, Bridget Phillipson, made significant efforts to enhance her rapport with educators. However, he stated, "It would be quite troubling if the Treasury were to step in and fail to execute a 5.5% salary increase."

"We certainly hope to prevent a strike, however, it appears unavoidable should the Treasury decide to intervene."

Stay ahead with the latest breaking news updates.

Download the Sky News application at no cost

A representative from the government expressed to Sky News, "We deeply appreciate the essential role that nearly six million public sector employees play in our nation."

"The salary review is currently in progress, and conclusive decisions have yet to be reached. Updates will be provided as appropriate, but we are fully aware of the significant financial challenges we have inherited."

Associated Subjects

Footer for Sky News

Information About Sky News

Services Provided by Sky News

Sky Network Channels

Additional Sky Websites