We’d love to hand out rises... but we can’t risk inflation
OUR PUBLIC servants are some of the best around. I know how hard they work, the fantastic job they do and the sense of public service they do it with. Our nurses, doctors and ambulance drivers save lives. Our teachers toil every day to prepare the next generation for the world of work.
We would love to give them a massive pay rise, not just because it would be politically expedient and bring an end to the disruptive strikes we’ve seen over the past few months – but because we understand the suffering that inflation is causing for households across the country.
Inflation is the enemy. An insidious tax on everything we need, triggered by the pandemic and Putin’s illegal war in Ukraine. It affects everyone, particularly those on the lowest incomes, cannibalises government budgets and leads to interest rate rises which push up mortgage costs.
That’s why we’ve made it our number one priority to stop prices rising at their current pace, putting together a plan that will halve inflation this year. We need to do everything we can to stick to that plan and tackle the root cause of people’s pain.
That means levelling with the British public about that fact that inflation-busting pay rises would simply prolong the agony.
IKNOW times are tough but there is light at the end of the tunnel. Many commentators hope inflation has now peaked and there is cautious optimism the Bank of England’s recent interest rate rise to four per cent – the highest level since 2008 – may be one of the last.
But that optimism is predicated on inflation not proving more persistent than currently hoped. The Governor of the Bank of England was clear last week that high pay settlements could result in inflation picking up again – prompting further interest rate rises.
Double-digit pay rises risk becoming the norm, feeding through to other workforces in the private sector. Yes, public sector workers would see a higher number
on their payslips but this would be eroded by higher prices in shops. They would rock economic stability, squeeze private sector investment, and block the growth needed to pay for the public services we’re trying to protect.
There is also a question of how we would pay for them.
With debt at its highest level since the 1960s, borrowing more is not the answer.we spent hundreds of billions through the pandemic to protect lives and livelihoods, preventing the kind of unemployment seen elsewhere in the world.
We’ve held down energy bills for households and businesses through a £55billion package – one of the largest in Europe – and we’re spending £63billion on direct cash payments this year and next for millions of people on means-tested benefits and with disabilities.
Such eye-watering sums show our commitment to supporting the most vulnerable people with temporary measures through these challenging times.
But pay increases are permanent. Even a one per cent rise costs £2.5billion and the unions are demanding double-digit increases. Markets respond to that kind of risk by raising the price of borrowing, meaning we’d have to spend taxpayers’ money – your money – on debt interest rather than on hospital beds and schoolbooks. I don’t think many people would agree to that trade-off, as difficult
as that may be. Nor would it be right to raise people’s taxes to pay for an inflation-busting settlement. Estimates suggest that such a pay rise could cost the equivalent of £1,000 per household.
Each of these options is equally unpalatable. There’s no easy solution.
It would not be right to raise people’s taxes to finance an inflationbusting pay deal
TRYING to strike a balance is precisely the reason we have independent pay review processes that have been around for half a century and which the unions themselves campaigned to establish. Last year’s pay awards were the highest in 20 years, weighted towards those on the lowest incomes.
Ensuring this year’s pay takes account of the extraordinary challenges we face is exactly why the Government invited unions to discuss its evidence submission last month, and we will continue to keep our door open to find a solution that can prevent further strikes.
Neighbouring countries are also grappling with these challenges and are taking difficult decisions on public sector pay to avoid these risks too.
I truly believe a solution can be found – one that is fair and affordable for the country. But we cannot risk throwing our plan off course and making life even harder for ordinary people.