We can afford to give public servants a pay rise. In fact, we can’t afford not to.

Published date
07 Jul 2017
Boris Johnson has now u-turned on his own rebellion on public sector pay.

On Monday, sources close to the foreign secretary said he supported a better pay deal for public sector workers, and “strongly believes the rises can be done in a responsible way and without causing fiscal pressures.”

But by Thursday, that strong belief had evaporated and Johnson switched into reverse. He now insists that “you can’t endlessly borrow, you can’t endlessly spend”. He even suggested that increasing public sector pay would be a “crazy splurge”.

But the evidence simply doesn’t support the those claims. Not only is increasing the pay of public sector workers affordable, it’s good for the economy.

How much?

According to the government line, giving public servants a pay rise would require a massive financial outlay. This isn’t the case.

The IFS has found that increasing the pay of public servants in line with inflation would cost £4.1bn a year. That sounds like a lot, but is actually equivalent to just 1% of departmental spending.

And if we factor in the economic opportunities created by increasing pay, the cost is reduced even more (see further discussion here).

Spending power

The main problem with the government’s claims on this issue is that they speak as though public servants exist in a vacuum, and that money paid to them will disappear into a black hole.

Instead, this spending should be seen as a modest investment.

Increasing the pay of more than five million public servants will increase their spending power. This is especially important now, as the pay squeeze — the longest since Victorian times — is dragging down growth.

In both the public and private sectors, working people have seen their real incomes shrink. They’re spending more and more on essentials like food and fuel, and have little left over to feed into other sections of the economy.

The effect is even more severe outside London. In the north-east, for example, suppressing public sector pay has already pulled £1.8bn of spending power out of the economy.

This is in turn driving a consumer debt bubble that is already approaching worrying proportions. Without action to address the pressures that drive consumers into debt, we risk another consumer debt crash.

In other words, allowing wages to fall in relation to the cost of living is becoming fiscally irresponsible.

Public support

But even if giving public servants a pay rise did created fiscal pressures, voters would still support it.

The TUC’s post-election poll found that more than three-quarters of voters support a public sector pay rise, even if it means paying higher taxes.

That includes 68 per cent of Conservative voters. These people are not being “selfish” as David Cameron has it — quite the opposite. The public recognises that giving our teachers, firefighters and nurses a pay rise is the fair and decent thing to do.

End the pay squeeze

The government has a clear mandate to invest in our public services, and in the people who staff them. Ultimately, it’s up to the chancellor to move things around in order to fund a reasonable pay rise.

But Philip Hammond’s claim that we can’t afford to end the pay squeeze simply doesn’t hold water. The reality is that we can’t afford not to.