Fair pay for key workers isn’t just the right thing to do - it’s essential

This is a bitter pill for many key workers; for the social care workers, refuse collectors, teaching assistants, the benefits advisors and staff at HMRC who have been on the frontline of the Covid crisis.  

And it’s a hugely regressive step.  

Public sector workers have already suffered from almost a decade of low and lost pay.  

After 2010 their pay was frozen, and then capped so that any increases in pay stayed well behind rises in the cost of living.  

TUC analysis found that some public sector workers have lost as much as £3000 from the value of their wages.  

Analysis from the HCSA, the hospital doctors’ union found that some of their members had lost as much as £15000 from the value of their wages over the last decade.  

Public sector workers have earned a decent pay rise, and we’ve commissioned analysis which shows that the government can afford it. 

In September we called for a public sector jobs drive to help prevent devastating levels of unemployment. We confronted Covid-19 with dangerously low staffing levels in vital areas like social care and nursing. 

That’s because a decade of underinvestment and restrictions on pay had driven many to leave the sector.  

Filling these vacancies will strengthen public services and help address unemployment.  

But that is much harder if we freeze pay across public services - pay is a key factor in recruitment and retention of the key workers we need more than ever.  

However, it is not enough just to recruit more public sector workers. 

We need them to earn a decent wage that recognises the vital work they do and helps promote growth in the economy. 

Research by the New Economics Foundation (NEF) commissioned by us shows that the cost of a public sector pay rise has been vastly overstated.  

As a baseline NEF assumed current government settlements in 2019/20, as follows 

Note that these figures are based on the government's own figures, which exaggerate some settlements.  

Many school teachers will have seen a much lower settlement because the government allowed their employers to decide whether to pay the full 3.1% rise, or even to pay a rise at all.  

As a result, many teachers received a much smaller rise than the headline implies or even none.  

Using NEF’s figures they estimate that ensuring all public sectors workers earn at least the minimum wage and have an increase in pay of 5% above inflation (an estimated total rise of 6.5%) for example, would cost an extra £7.2bn on the public sector wage bill. 

But this headline figure is misleading.  

The increase in pay means an increase in tax income for the government. This effect means the headline costs drops by nearly £3bn to £4.5bn.  

But that’s not all 

When demand in the economy is low, because people have less money so can’t buy as much as they would otherwise, increased spending power translates into more demand and so more money going into local economies. 

That money circulates and increases GDP. NEF estimate that this effect would generate between £2.4bn and £4.6bn depending on the size of the effect.  

That increase in GDP also brings additional tax income with it, which NEF estimate as between £810m and £1.5bn  

That brings the total cost down to between £2.9bn and £3.7bn.  

In the middle of a recession caused by demand collapsing, this additional spending shouldn’t be called a cost, but an investment.  

Even right-wing think tanks like the Institute of Economic Affairs have pointed out that public sector workers are “consumers too”.  

Key workers have earned their pay rise.  

Attempts to make them pay for the pandemic are unjust. But they’re also unnecessary.  

We can afford to pay our key workers a decent wage and its time we did just that.