Ministerial messaging on the inflationary threat of ‘unaffordable’ wage demands by low-paid NHS staff doesn’t ring true, according to expert opinion, and reflects a political expediency that prevents the health service being equitably supported by higher taxes on the private sector. Meanwhile the government continues to push through new legislation severely restricting industrial action by those same staff seeking better remuneration.
The missing link
Last week, Essex University professor Paul Whiteley wrote a blog pointing up the shortcomings of the government’s PR strategy on this politically sensitive subject, stressing that it is private – not public – sector pay that drives inflation. He asserted that public healthcare is free at the ‘point of use’ and so does not affect inflation statistics at all, and gave as evidence the fact that last year inflation and private sector pay both rose around 6 per cent, while public sector pay increased by just 1.7 per cent.
Whiteley concluded his blog by saying, “Public sector workers are striking in response to inflation, but there is no evidence that their [proposed] wage increases are producing inflation. In effect, the wage-price spiral does not exist for public sector pay. A key reason for this is that the public sector makes up only 17 per cent of the total workforce, so it has much less of an impact on the economy than the private sector.
The upshot… is that public sector workers are being penalised by reductions in their pay for reasons that do not bear up to scrutiny. Public sector pay increases do not translate into high inflation.”
This assessment is backed up by an earlier analysis from the Left Foot Forward (LFF) thinktank, which suggested that talk of an NHS-driven ‘wage-price spiral’ was nonsensical because, unlike the private sector, the health service can’t raise prices to pay for higher wages.
LFF quoted an Institute for Fiscal Studies spokesperson, who explained it thus, “Higher pay for midwives [would not] increase the ‘price’ of giving birth in an NHS hospital.” The thinktank followed up by questioning the logic of current government messaging, noting that inflation was at a 40-year high, despite wage stagnation.
The dubious ‘causative’ link between public sector pay and inflation was also put under the spotlight last year by data from the HR services company XpertHR. This showed that, of more than 1,000 pay deals covering 5.5m British jobs, the average pay rise over the previous 12 months was 1.8 per cent, while inflation over the same period was 7.1 per cent.
LFF has since estimated that a 9 per cent pay rise across the public sector would cost £21bn, but argued that up to 40 per cent of that (ie £8bn) could be returned to the Treasury’s coffers through the extra income tax and national insurance – along with extra VAT, fuel duty and other indirect taxes – subsequently paid by public sector workers.
More pertinently, the pressure group noted that ‘affordability’ was never an issue when bailing out banks or energy companies, or awarding tax cuts to the super-rich. LFF suggests that more than £25bn could be collected by taxing capital gains at the same rate as earned income. Another £8bn could be collected by taxing dividends in the same way, and billions more could be raised by a wealth and financial transaction tax. And tellingly, it pointed out that, since 2010, HMRC has failed to collect more than £400bn due to tax evasion, avoidance and fraud.
These historic failures to boost the public purse and better support the NHS stem from political choices, just as using inflation caused by a war in Ukraine and the covid pandemic to impoverish NHS staff now is a deliberate move.
As, of course, was the decision last autumn to drop the proposed Health and Social Care Levy, which was predicted to raise £12bn a year for the NHS and the social care sector, and would undoubtedly have eased the budgetary pressures regularly cited by ministers whenever they are challenged on public sector pay.
And now the strategy of stalling on meaningful pay talks with unions (except for the RCN, following that body’s decision to defer strike action last week) comes against a background of a public spending windfall for chancellor Jeremy Hunt (recipient of a modest ministerial income of £67,505 which is roughly double the average wage of a nurse, and which presumably is in addition to his MP’s entitlement of £84,144).
New data from the ONS last week, uncovering a dramatic reduction in public borrowing, offers a potential £30bn windfall to Hunt, in the process undermining Treasury claims that there’s no spare cash available. Along with the latest boost in tax revenues – a handy by-product of high inflation – this could easily enable the current (maximum 3.5 per cent, or £1,400 per person) pay offer to NHS staff to be increased.
Sadly, there has been speculation that the windfall could also offer ample scope for pre-election giveaways in next month’s Budget. Last week, Observer columnist William Keegan considered this possibility, describing a cynical “connection between this government’s policy of being as parsimonious as it can get away with on public sector pay awards and its desire to attempt tax cuts on the eve of the next general election.”
More cynically still, while it stalls on pay talks, the government continues to push through Parliament an anti-strike bill which will enforce minimum service levels – a move which will effectively silence those seeking better pay in the NHS. Last week the TUC, alongside four other campaign groups, wrote to the government asserting that, “This draconian legislation will mean that when workers democratically and lawfully vote to strike… they can be forced to work [or face] the sack… [simply] for trying to defend their pay and working conditions.”
All of which suggests political, rather than economic or financial issues lie at the heart of the government’s handling of the current pay dispute.
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