Risks of a pay rise

Theresa May has returned from holiday determined not only to reassert her authority after the election debacle but also to bury austerity, it appears. The Prime Minister is said to be ready to abolish the 1 per cent cap on public sector pay rises and give those professions struggling to recruit and retain staff a salary increase. Given the Government’s weakened state in Parliament, it is unlikely that the pay cap would survive if re-announced in the autumn budget. Mrs May is, perhaps, seeking to make a virtue out of a political necessity.

But when several Cabinet ministers broke ranks in the summer and called for higher pay in the public sector, Philip Hammond, the Chancellor, made his opposition evident. A cap is factored into the Treasury’s spending plans and any weakening will leave a hole. Furthermore, it is suggested that the country is “tired with austerity”. But private sector pay growth has been even lower than in the public sector, where other benefits such as generous pensions help ease the pain and automatic promotions boost salaries. If taxpayers start seeing public servants, however deserving, getting an uplift at their expense, they will resent it. The public sector remains heavily unionised and will push for big rises once the restraints are off.

This risks sending a dangerous message that the Government thinks it has achieved its deficit reduction ambitions because borrowing is down to pre-financial crisis levels as a proportion of GDP. But national debt continues to soar and we still live way beyond our means. Moreover, if pay goes up but there is no more money for public services then the impact will be felt in jobs. The unions should bear that in mind before they celebrate.