Chancellor of the Exchequer Jeremy Hunt must consider dipping into a £14 billion ($16.9 billion) pot of reserves to fund a pay raise for UK public sector workers or deepening a crisis in frontline services, the Institute for Fiscal Studies said.
(Bloomberg) — Chancellor of the Exchequer Jeremy Hunt must consider dipping into a £14 billion ($16.9 billion) pot of reserves to fund a pay raise for UK public sector workers or deepening a crisis in frontline services, the Institute for Fiscal Studies said.
The research group said it’s “implausible” that the Treasury will not stump up extra money after Hunt used his budget on Wednesday to funnel money to motorists, corporations and wealthy pensioners instead of pay to end a wave of strikes.
Britain is in the grip of a winter of industrial strife hitting services across the economy including rail, healthcare and the civil service.
However, there are growing hopes that some of the disputes could be nearing an end. Bloomberg reported on Thursday that the government has agreed to offer nurses, midwives and ambulance workers a 5% pay increase for 2023-24 to end the industrial strife in the NHS.
“You can’t keep cutting the pay of teachers, nurses and civil servants, both in real terms and relative to the private sector, without consequences for recruitment, retention and service delivery,” Paul Johnson, director of the IFS, said Thursday. “Money will have to be found from somewhere.”
He suggested using a £14 billion reserve to fund one-off or backdated pay awards to help end the strikes.
“More generally, the argument that this is not affordable founders on the fact that Mr. Hunt found £20 billion a year yesterday for other things,” Johnson said. “This is a question of choices and priorities.”
The IFS said the UK households are facing a “lost decade” for living standards as they are squeezed by double digit inflation and higher taxes.
It calculated that average household incomes would be £10,000 higher if it followed the pre-financial crisis trend. Incomes by 2027 are set to be similar to their levels in 2019, the IFS added.
“Prices remain much higher than two years ago. Earnings haven’t caught up,” Johnson said. “The freezing of income tax and NICs allowances and thresholds will cost most basic-rate taxpayers £500 next year and most higher-rate payers £1,000.”
–With assistance from Andrew Atkinson.
(Updates with details from the release)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.