It’s goodbye to austerity with the NHS pay rise
Philip Hammond has abandoned public sector pay restraint far too soon and left the job half done
After nearly a decade of earnings attrition, everyone no doubt deserves a pay rise, but perhaps none more so – at least in the eyes of the British public – than those working for the cash-starved National Health Service. Who would begrudge nurses and paramedics their rise?
Politically, the extra £4.2billion over three years now promised for NHS pay has gone down well. In terms of its wider messaging, too, it’s an important concession, for it seems to signal that the austerity and belt-tightening of recent years is finally over.
The economics of what ministers are doing is, on the other hand, much more questionable. Introduced by the Conservative/liberal Democrat Coalition in 2010, the public sector pay freeze was a cornerstone of deficit reduction strategy. But it carried a heavy political cost and is widely thought to have contributed to the loss of the Tory majority in the last election.
Case by case, it is now being dismantled. Concessions on NHS pay follow not dissimilar deals for the police and prison officers. Even so, the assumption of continued overall pay restraint remains central to Treasury plans for closing the budget deficit and reducing public debt.
Most chancellors have pet catchphrases and they nearly always end up failing to observe them. For Gordon Brown it was ending “boom and bust”; for George Osborne it was “fixing the roof while the sun is shining”.
Whether the economic sun is actually shining right now is admittedly arguable. Despite pretty much full employment, it certainly doesn’t feel like summer. Some sectors — such as traditional high street retailing — look positively recessionary. The structural reasons for this malaise are perhaps more important than the cyclical ones; growth in online shopping has combined with the higher living wage and swingeing increases in rents, business rates and other costs to create a perfect storm of high street misery. Squeezed real incomes are perhaps the least of the sector’s problems.
Even so, the UK, like much of the rest of the world, is, in the round, experiencing steady, if unspectacular, growth, with not much reason to believe things are about to change. After the catastrophic damage done to the public finances by the financial crisis, this is therefore very much a time for continued roof fixing. Yet the political pressures are all the other way round.
The Government shows every sign of walking off the job with the work only half complete. As anyone with experience of builders knows, this is very much the pattern. The contract begins with great enthusiasm and apparent progress, only to grind to a virtual standstill as alternative priorities and commissions multiply.
That is essentially where we are on public debt reduction. Voters have tired of austerity and increasingly the politicians question its necessity. All over the shop, the chains that have bound public spending are being loosened, or soon will be.
Take defence. It is now completely obvious that the UK needs to spend a lot more on its military over the years ahead. Theoretically, defence spending is a protected area that already gets more than its fair share. In practice, there are now so many new and competing demands on its 2 per cent of gross domestic product quota, from pensions to Trident renewal, and intelligence to cybersecurity, that core capabilities are getting starved to the point of collapse.
This plainly has to stop. Gavin Williamson, the Defence Secretary, is champing at the bit for more money. As indeed is the whole of Whitehall after the years of deprivation.
The thaw is already well under way, regardless of affordability. This week’s NHS pay deal only recognises a pre-existing trend. Data announced this week show public sector pay rising by 2.1 per cent over the past year, only slightly less than seen in the private sector and well in advance of the previous cap. After the cull of the post-crisis era, the number of publicsector workers is also beginning to creep up again.
Ministers insist that health workers are a special case, but isn’t everyone? A tsunami of pay demands threatens to sweep the land. In a perfect world, macro-economic policy would be pursued in a counter-cyclical manner, such that spending is constrained in the good times so it can be released in the bad. In practice, it almost never is.
In his Spring Statement, Philip Hammond virtually committed himself to the very reverse. There would be capacity for further increases in spending and investment, he said, if things continue to improve in the way the Office for Budget Responsibility has hinted at.
Actually, the OBR gave very little reason for such optimism, with one of the gloomiest set of medium-term economic forecasts ever produced. But, in any case, Mr Hammond isn’t hanging around to find out, and is upping his spending regardless. Fixing the roof can wait. Maybe the gamble will pay off. Much more likely is that come the next downturn, we are in for a further soaking.
follow Jeremy Warner on Twitter @jeremywarneruk; read more at telegraph.co.uk/opinion