In the perfect world that doesn’t exist, there wouldn’t be a public sector pay cap – because remuneration for the police, prison officers, nurses, teachers, local government workers and so on would be much more varied. Costs are not the same in Hull, say, as they are in Hastings, especially when it comes to housing; performance is not necessarily the same anywhere. Decisions on pay would be devolved to chief constables, prison governors, hospital chief executives, head teachers, and council cabinets. George Osborne floated reform in his 2012 Budget, only to back off later. His eventual judgement was that public sector workers would live with a one per cent cap, but would revolt against lower pay outside the greater South-East, as might a slice of Conservative MPs in the Midlands and North.
That was five years ago, and much has changed – in political terms, at any rate. Theresa May’s team didn’t sense the growing resistance to the pay cap among public sector workers when the snap election was called. Jeremy Corbyn’s were more alert to the effect on the public mood of the squeeze on living standards. Lord Ashcroft’s focus groups picked up the change: “the only thing Labour have got me on at the minute, and which I’m leaning towards, is them saying they’re going to remove the cap on the one per cent pay rise. I could potentially get a decent pay rise for the first time in six years,” he records a voter saying in May. Many of the public sector workers who swung to Labour a month later will have been motivated more by the hit to their pockets than by the condition of the public services (which voters are more satisfied with than they were when Gordon Brown was in office).
Some of our readers will doubtless complain that the public sector has little to complain about. They have a point. The traditional settlement was that private sector pay was higher, but public sector conditions more secure: those who work in it are harder to fire, on the whole, and have better pension provision, now that private final salary schemes have all but vanished. Recent years have upset that apple cart. Average public sector pay is higher than private sector, even adjusted for qualifications, which tend to be higher in the former. However, the gap between the two has narrowed, and inflation, now running at 2.9 per cent, is eroding the value of both. The election result has shaken the Party’s self-confidence, and the Great Conservative Student Panic is mirrored by alarm about Tory ratings among public sector workers. Furthermore, there are some real recruitment and retention problems. Hence the lifting of the cap.
It is important to point out that it never fitted all public sector workers equally. The Osborne pay freeze that preceded it did not apply to the lowest earners. And the cap itself has squeezed some workers more than others, while others still have not really been squeezed at all. For example, the average senior NHS manager has seen basic pay rise 15 per cent in cash terms since 2010, while nurses have seen a five per cent rise on average. Ministers will try to keep as much distance as possible from decision-making about how the revised awards will be paid – though reports about their intentions for prison officers’ pay suggest that they want to find as much flexibility and variability as possible. It’s also worth noting that the Coalition has left a new means of approving more pay behind it. Referendums can authorise higher council tax to fund the police and other workers.
However, there is no sign that local voters are willing to stump up. Bedforshire rejected a proposal for higher council tax to fund extra police officers. A purported plan in Surrey to hold a poll to raise the tax to help fund social care was never actually put to voters. This reluctance has a political message for Philip Hammond, who must present his second Budget this autumn, and whose first saw a major reverse on NI contributions. He is insisting that public sector pay increases are funded by tax rises or spending cuts. The NI debacle was a reminder that Tory MPs, like those local voters, don’t want to see taxes going up. And finding reductions in the rate of spending of which they will approve is never as easy as it sounds. Public sector pay consumes roughly a quarter of public expenditure. It is hard to see where the tax hikes or spending scaleback to fund higher pay will come from if the Chancellor sticks to his guns.
One point is certain: neither he nor Theresa May will get no thanks from the unions. Prison officers want more than the 1.7 per cent on offer. The Police Federation wants 2.8 per cent. Len McCluskey is threatening to break the law with illegal strikes if necessary. Corbyn’s position on the matter seems to be deliberately ambiguous. It is possible to imagine public sector workers taking a more benign view of the Conservatives had the cap been lifted in the run-up to an election. At this point in the electoral cycle, it is more likely that they will pocket any gain without the polls moving at all. There is a whiff of the 1970s in the air.