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Public Sector Pay

Volume 736: debated on Thursday 13 July 2023

With permission, I will make a statement on the steps His Majesty’s Government are taking to deliver sound money while providing a fair deal to public sector workers. Today, I can announce that the Government have accepted the headline recommendations of the independent pay review bodies in full. We are doing this while abiding by sound money, which, as the Chancellor said at Mansion House on Monday this week, is our No. 1 focus.

We cannot grow our economy or reduce the heavy burden of national debt without first cutting high, persistent inflation. Inflation makes every person in this country poorer. It is the most insidious tax rise there is, and that is why the Prime Minister has made it this Government’s priority to halve it this year. Inflation is currently at 8.7% in May, and core inflation stood at 7.1% in the 12 months to May 2023—the highest for 30 years. It is making everything from groceries and clothes to petrol and transport more expensive, so we must and we will do everything we can to tackle inflation.

The best tax cut there is is a cut to inflation, and that means we must take responsible decisions on the public finances, including public sector pay, because more borrowing is itself inflationary. According to recent International Monetary Fund estimates, advanced economies that increased public expenditure by 1 percentage point, which would mean £25 billion for the UK, saw inflation rise by half a percentage point. Yet our decision is responsible because, unlike some unsustainable demands, we have delivered awards that do not further fuel inflation and make the inflationary environment worse.

We said we would accept the outcome of the public pay review bodies, and that is exactly what we will do. We will do so because we are proud of our world-class public servants and owe them a debt of gratitude for their service through the last few years, including through the pandemic. Our police officers work tirelessly to keep this country safe, our armed forces defend us, our doctors and nurses make sacrifices to save lives, and our teachers go to school day in, day out to educate our children. All of them, and many more across many sectors, play a vital role in society.

With these contributions in mind, new teachers will start on at least £30,000. The lowest-paid armed forces will see a pay rise of over £2,000, and the starting salary of a junior doctor will rise by more than £3,000. That comes alongside our “Agenda for Change” deal, which delivered a 5% pay rise, along with one-off awards worth more than £3,600 for the average nurse and more than £3,700 for the average ambulance worker.

Specifically, this means policing will receive a 7% headline uplift. NHS consultants, speciality and specialist doctors, salaried dentists and salaried GPs will receive uplifts of 6% this year. Junior doctors will also receive a 6% uplift, as well as an additional consolidated £1,250 increase. Prison officers in the operational bands will receive a pay increase of 7%, with larger increases for support grades. Armed forces will receive a 5% uplift, with an additional consolidated £1,000 increase.

Our 6.5% pay award for teachers will be fully funded, with the Government providing £525 million of additional funding for schools in 2023-24 and a further £900 million in 2024-25. In order to achieve this, we are reprioritising within the Department for Education’s existing budget to deliver this additional funding to schools while protecting frontline services.

Alongside generous uplifts, today’s deal strikes a balance. It is a fair deal, which recognises the anxiety caused by cost of living pressures, supports recruitment and retention, and delivers one of the highest settlements in three decades. However, it is also fiscally responsible, and delivers pay rises that are broadly in line with the private sector. It would be neither fair nor affordable to meet unsustainable demands for pay rises well into double digits. To do so would be fiscally irresponsible, increasing national debt, passing the buck to future generations, weakening the foundations of our economy and further fuelling inflation.

There will be no new borrowing or spending to fund the awards. More borrowing would simply add more pressure on inflation at exactly the wrong time, risking higher interest rates and higher mortgage rates. Instead, the awards will be funded through a combination of the significant provision for pay that was made at the last spending review, greater efficiency, and reprioritisation. Departments will be reprioritising within existing budgets and driving further efficiencies to focus spending where it delivers the greatest value.

We will also take sound choices to maximise income. We plan to increase the rates of the immigration health surcharge, which have been frozen for the past three years, despite high inflation and wider pressures facing the economy and the system in general, to ensure that it covers the full healthcare costs of those who pay it. Under our plans, the main rate will increase to £1,035, and the discounted rate for students and under-18s will increase to £776. That increase to the surcharge will help to fund the pay rise for doctors.

At the same time, we will increase fees across a range of immigration and nationality routes, including for people coming here to live, work and study at a time of record high migration numbers. Specifically, that means increasing the cost of work visas and visit visas by 15%, and increasing the cost of study visas, certificates of sponsorship, settlement, citizenship, wider entry clearance, leave to remain and priority visas by at least 20%. We are also equalising costs for students and those using a priority service, so that people pay the same whether they apply from within the UK or from outside the UK. That will help to cover more of the cost of the migration and border system, allowing the Home Secretary to divert more funding to police forces to help fund the pay rise for the police. We will cut back on civil service recruitment in the Ministry of Defence until March 2025, helping to fund the pay rise for our armed forces.

The Government’s carefully calibrated approach to avoid increasing inflation could not be more different or further away from the economic platform offered by the Labour party. Labour’s proposals for an unfunded £28 billion a year spending spree in the second half of the next Parliament would deal a huge blow to our country’s collective efforts to tackle inflation. Members do not have to take my word for it, because we already have the view of the independent Institute for Fiscal Studies. Its director, Paul Johnson, said just a few weeks ago that additional borrowing would pump more money into the economy, potentially increasing inflation and driving up interest rates.

The action we have taken today is the most responsible way forward, striking a balance between the demands of our public sector workers and the needs of our country and economy. Industrial action has postponed more than 600,000 hospital appointments, cost our children more than 1 million days of teaching, and damaged the productivity and growth that we so clearly need in these challenging times. We have introduced and expanded this with the Strikes (Minimum Service Levels) Bill, which will limit the impacts of industrial action on the lives and livelihoods of ordinary people, who should be able to access key services during industrial action. The Bill gives us the power to set minimum service levels across key public services, such as healthcare, fire and rescue, public transport and education, and it gives us the right tools to deal with any ongoing disputes.

We must deliver on the Prime Minister’s pledge to cut inflation, so we will continue to chart the course of sound money, to the benefit of all, while making fair pay awards—awards that do not fuel inflation—to our public sector workers.

I thank the Chief Secretary to the Treasury for the advance copy of his statement. Let me begin by praising the efforts of our NHS staff, teachers, police officers and members of the armed forces. The nurse who looks after someone when they are ill, the teacher who opens up new horizons for a pupil, the soldiers and police officers who keep us safe—we owe them all a great debt of gratitude. They are what make the good society, and we all rely on the public services they provide every day. Like all workers, they deserve a decent pay rise, and like all workers, they are living in a wider economic context.

The Government set out a plan at the start of the year, and then the economy intervened on their plan. They say that a plan does not survive contact with the enemy, but this Government’s plan has not even survived contact with reality. Just a couple of hours before the Chief Secretary to the Treasury gave us his statement, we heard news that the UK economy shrank in size last month. Even more worryingly, that comes after four years in which there has been no meaningful economic growth at all. Today’s Office for Budget Responsibility fiscal risk report describes what it calls a “disappointing decade” for economic growth. That disappointing decade means that, in reality, incomes for households, including the workers we are speaking about today, have stagnated and sometimes fallen. The country is less prosperous and more exposed to shocks than it should be, and that is the backdrop to today’s statement.

Ministers want to claim that all these problems are global, but inflation in the UK is the highest in the G7. Every month when the figures come out, they are higher than expected. Core inflation was up last month, not down. Food prices are rising 20% faster in the UK than in France, and three times faster than in the United States. Low growth, high prices, creaking public services—that is the legacy we have after 13 years of the Conservatives in power, with longer waiting times and waiting lists, and more than 3 million days lost to industrial action this year alone.

In his statement, the Chief Secretary to the Treasury talked of sound money, but the Government’s failings on public services have become economic failings too. Let me give the House one example. As the OBR pointed out in its risk report today, if we got labour force participation back to pre-covid levels by reducing ill health, we could reduce borrowing by £18 billion. The long waiting lists and waiting times are not just a health issue, but an economic issue. After the Conservative party put a bomb under mortgage rates last autumn, UK homeowners are now paying £2,000 a year more than those in France, £1,200 a year more than those in Belgium, and £800 a year more than those in Germany. It is not all global.

The Chief Secretary to the Treasury made a contrast with the Labour party, but Labour’s record on public services, which are at the heart of his statement, was investment and reform in the NHS, shorter waiting times and waiting lists, the highest levels of public satisfaction with the NHS since its foundation in 1948, and a fraction of the days lost to industrial disputes that we have seen under this Government. We also had better economic growth. When it comes to sound money, I remind the right hon. Gentleman that if we had continued with Labour’s rate of economic growth, the Treasury would be tens of billions of pounds a year better off than it is today.

What is the Government’s estimate of the impact on public services of funding the rises in the way he has set out? The Chief Secretary to the Treasury talked of “reprioritising”. Does that mean that the Government will cut back on capital investment in schools and hospitals in order to fund those increases? What is the estimated impact of the civil service recruitment freeze that he announced for the Ministry of Defence? What will be the impact on the NHS recovery programme that has been set out, and what will it mean for the shocking level of waiting lists and waiting times that we see under this Government? He said there would be no new money, but he also said that the pay rise for teachers was fully funded with new money. Which is it, and can he clarify the two things that he said in his statement about that?

The economic backdrop colours everything in this statement. It is no longer a matter of judging whether the Conservative Government will fail; the fact is that they have already failed. That is why the general election cannot come soon enough.

It is not clear to me or, I think, to the House as a whole whether the right hon. Gentleman accepts the Government’s acceptance of the pay review bodies’ recommendations in full today. He seems to have written his speech as a general critique of the Government’s economic policy, without addressing what matters most to public sector workers up and down the country, which is that we have listened carefully to the evidence-based advice, as is typical over the past 13 years, and agreed with all those recommendations.

The right hon. Gentleman paints a picture of the last Labour Government and projects forward, as if it were utopia. That is why Labour did not win the 2010 general election and why one of my predecessors said there was no money left. Labour did not take those difficult decisions between 2008 and 2010, and that was the situation we were in when, I believe, he was attending Cabinet.

The right hon. Gentleman made some other observations about the economy. I am aware of the record growth over the past two years. I acknowledge the challenges we face at this point in time, and I have set them out in full with respect to inflation, but we have gone through a pandemic, where we borrowed significant sums of money. When we came out of that pandemic, we found ourselves in the first war in Europe for several generations. That is the context that the people of this country understand.

I have set out clearly all the implications for each workforce, and there will obviously be a series of written ministerial statement from each Government Department. The right hon. Gentleman also sets out some questions about waiting lists. I recognise the challenges faced in the NHS, which is why it is one of the Prime Minister’s top priorities. We have made real progress with the virtual elimination of the two-year waits, and 18-month waits are down by 90%, but I acknowledge that there is more work to be done. The £2.4 billion invested in the workforce plan will make a considerable contribution to that. The productivity review that the Chancellor tasked me with leading a few weeks ago will look further at how we can drive more efficiencies in how we spend public money.

I will finish my initial response by reiterating to the House that the decisions we have made today mean no new borrowing, no cuts to the frontline, no new taxes and no negative impact on inflationary pressures.

My right hon. Friend the Chief Secretary can have some clarity from me: I think this is fair when we consider, as the Government must, the whole economy, and I think it is proportionate, so I welcome it. Does he agree that the NHS settlement has to be seen alongside the Budget announcement on pensions, as well as the NHS long-term workforce plan? Will he undertake to work with all pay review bodies going forward to get us to a more ordered place, where the mandate is given in the autumn and the response is heard in the spring Budget?

My hon. Friend makes some sensible points, and he is absolutely right on the pension changes that we announced in the Budget, which the British Medical Association had been for a long time asking for, and it welcomed them. For clarity, I should make it clear that health and care workers remain exempt from the immigration health surcharge. He speaks a lot of wisdom about potential refinements to the timetable, and we will look at those carefully.

I thank the Chief Secretary for an advance copy of his statement. It was noticeable that in his initial statement he did not mention the fact that the British economy has been at a standstill since before the pandemic. It was noticeable that neither he nor the shadow Chief Secretary, the right hon. Member for Wolverhampton South East (Mr McFadden), want to admit the part that Brexit has played in that. Everybody has been affected by covid and the war in Ukraine, but only one state in Europe is suffering from the self-inflicted damage of Brexit, and that is why economic growth in the European Union is and will continue to be higher than here.

While we certainly welcome the news that the Government have finally decided to honour the pledge on public sector pay, will the Chief Secretary acknowledge that in almost every single case the pay increases being offered to public sector workers will be less than increases in the cost of living, so in real terms they are a cut? Will he acknowledge that in almost every case the Scottish Government have already settled with our essential public sector workers in Scotland, in almost every case with a substantially higher pay deal and in most cases—certainly throughout our NHS—without a single day being lost through strike action? What are the Scottish Government getting right that this Government find so difficult?

One of the biggest challenges facing the economy is a shortage of workers, so what a brilliant move to address that by charging essential workers more to come here and contribute to our economy. Can we have full details of the increases to immigration fees, including a full statement of the expected economic impact, including an indication of the likely impact on immigration numbers? Will we be driving away essential workers and causing more damage to the economy simply to feed the right-wing fantasies of the Daily Mail and the Express? Given that there is almost unanimous agreement in Scotland that we need more immigration, not less, is it not time for the Scottish Parliament, answerable to the Scottish people, to be given the powers to decide on the immigration policies we need, rather than constantly being dragged down by the failed policies of this United Kingdom Government? Does he accept that rampant inflation and stagnant economic growth are not essential, but are deliberate political choices of this failed Government?

I thank the hon. Gentleman for his questions. I think we can agree to disagree on some of that. What we have to understand is that if we look at the growth levels over the past two years in the G7, this economy and this country have performed well. He makes a number of points. People are getting weary of this constant refrain around Brexit. There are people who voted for Brexit and people who did not; it has happened, and we will now take every step we can to maximise the benefits and opportunities and the greater discretion that we have consequential of that decision.

With respect to the specific questions about visa fees, I am sure that my colleagues in the Home Office will publish those in due course. This is a carefully calibrated decision; it is not motivated by political dogma. It is a clear decision to take necessary steps to avoid additional borrowing, and to meet the outcomes and the numbers that derive from the PRBs, which give evidence-based advice to the Government. This is a careful set of judgments. Clearly they will not please everyone, but we have to make decisions in the interests of the whole economy at this time.

It was revealing that the shadow Chief Secretary, the right hon. Member for Wolverhampton South East (Mr McFadden) could not tell the House whether Labour was in favour of the pay awards or against them. Perhaps he is not sure whether Labour Members will be joining strikers who are stopping my constituents from receiving healthcare or their children from getting to school. My right hon. Friend is absolutely right that constituents have a right to expect productivity improvements to match these pay increases. Can he explain to the House a bit more about what the next steps with the productivity review will be?

Yes, I can. I have written to every spending Minister in the past week. I will be having conversations with them and wider representatives about what can be done differently to drive savings and more productivity from the taxpayers’ money that we spend across Whitehall. To return to my hon. Friend’s previous point, I draw his attention and that of the House to what the International Monetary Fund said. For every additional £25 billion of spending, that is 0.5% on inflation. If Labour’s plan is to spend an additional £28 billion—Labour might say that it will be a bit later on in the Parliament, and it might be an attempt to outwit the Government on the massive leadership that we have shown on green finance and the green economy—that would be inflationary. The shadow Chief Secretary, the right hon. Member for Wolverhampton South East needs to come to terms with that, because the British people will in due course.

Wealth creation and health creation are two sides of the same coin, so it is hardly surprising that the Office for Budget Responsibility has said that economic inactivity has increased as many more people are citing ill health as the main reason for not working. When every single part of our economy—whether farming, hospitality, science or engineering—is struggling to recruit the international talent that it needs, why on earth are this Government about to take this anti-business measure of increasing the cost of recruiting people from abroad through an increased health surcharge, rather than reversing the tax cuts for the big banks, closing the loopholes in the windfall tax and clamping down on tax avoidance, as the Liberal Democrats have called for?

We have got record levels of migration at this time. At the Budget, we set out a clear plan to get more people in this country back into the workplace, with a number of interventions through the Department for Work and Pensions and the health service. We have had to make a fine judgment around those fees in the context of not borrowing any more money. If the Liberal Democrats wish to be taken seriously as a party of government, they will have to make the numbers add up.

I welcome the Chief Secretary’s statement. Would he be kind enough to confirm for teachers in Kettering that the 6.5% pay increase recommended by the independent pay review body will deliver the biggest pay increase for teachers in 30 years, that the new starting salary for teachers of £30,000 will be at its highest ever level and that the Government will be fully funding the pay award so that schools do not have to raid their own budgets to honour it?

As ever, my hon. Friend is spot on. Everything that he said is absolutely correct. This is a significant pay settlement for teachers, and I hope that in due course we will learn that striking workforces will end their action and we can look forward with confidence to the autumn term.

The Minister’s statement proposes that the pay rises offered, which are less than the rate of inflation for every single one of the millions of people who work hard for our public services, will be paid for effectively by what he calls a productivity drive. Is it not the case that productivity in Tory hands means cuts to services and reductions in staff? Why did the OBR say this morning that, on our present track, we will finish up with a debt 300% of our GDP? When he talks about sound money, it simply is not true, is it?

I do not accept the hon. Member’s characterisation of the long-term fiscal risk to the economy. What I do accept is that we need to take tough decisions. It seems to me that he is saying what a significant tranche of the Labour party still believes: we can borrow, borrow, borrow and, in due course, if Labour ever gets into government, it will raise taxes sequentially, as happened previously.

I warmly welcome my right hon. Friend’s statement. Given that almost every single one of the public sector union leaders has called for the Government to accept the pay review offer, does he agree that the unions should immediately cease strike action, get back to work and provide the service that the public need?

I absolutely agree. That is indeed what we expect to see in the coming days. This is a tough decision based on evidence as well as what is right for the economy and the public sector as a whole. I hope that that is what happens in the coming hours and days.

The truth is, the UK is in real trouble, and it is our constituents through sky-high mortgage rates and food prices who are paying the price. Our public finances are more exposed to rising inflation than other comparable countries. The UK has borrowed twice the inflation-linked bonds of any other Government. What the Government pay to borrow has risen by 2%, compared to the G7 average of 0.5%. The OBR says that UK Government debt is forecast to rise by 3.1% of GDP this year, compared with average falls of 1.8% in other European countries. Will the Minister come clean with the House and our constituents about just how close his Government have driven us to the economic precipice?

I do not accept virtually anything that he said. What I do accept is that the whole of the world is dealing with massive inflation pressures, and if we look across the continent of Europe, we see very similar figures. Of course, they differ in some respects, but the Government are determined to bring inflation down, and today’s decisions are another contribution on that journey to halve inflation this year.

Millions of our hard-working public servants will welcome the settlement, which is fair both to them and, crucially, to the taxpayer. Can the Minister update the House on what steps he will be taking to eliminate public sector waste to ensure that the settlements are sustainable for the taxpayer?

The first step today has been to ensure that we are not borrowing any more to make the settlement work. The productivity review that will take place in the coming days and weeks leading up to the autumn statement will be a key element of that. I have not wanted to set a target for that, because I will be looking everywhere to find better ways of spending taxpayers’ money to ensure that we deliver the services and commitments we set out at the spending review in the most efficient and effective way.

I am a little concerned about the £1.425 billion to be found from within the Department for Education’s existing budget between now and 2025, with £525 million this financial year and a further £900 million in the next financial year. Will the Minister be a bit more specific about exactly where that will be taken from within the Department’s budget to meet the teachers’ pay increase?

While of course we welcome the fact that the Government are honouring the teachers’ pay review body recommendations, let us not forget that the envelope for the review bodies is set by the Government in the first place. There is something else going on in this situation: we currently have a recruitment and retention crisis among our teaching workforce, with something like 20% of newly qualified teachers leaving after three years and 40% leaving after five years. Nobody goes into teaching because of the money, but it always helps, and a rise in line with inflation would certainly help.

I thank the hon. Gentleman for his question. I think he welcomes what we have decided to do with the 6.5% pay increase, which leaves a typical teacher with £44,300. We are reprioritising within the Department for Education’s existing budget to deliver the additional funding to schools, but we are protecting core schools funding and frontline services. We have put in additional sums of money through the spending review and subsequent fiscal events: £330 million in 2023-24 and £550 million in 2024-25. The numbers add up, and he will recognise that.[Official Report, 17 July 2023, Vol. 736, c. 10MC.]

I recently joined the Public and Commercial Services Union at East Kilbride’s Centre One tax office for its campaign on fair pay. Many told me that they were struggling on minimum wages. We have dedicated public servants who, with the cost of living, are struggling to make ends meet. Does the Minister share my concern that much more must be done to secure a fair pay deal that is acceptable to those who are working on the frontline?

I say respectfully to the hon. Lady that we have taken a number of interventions and made a number of decisions across the board, and that does not just mean a single percentage—I set out the percentages across different workforces in some detail—and sometimes, such as within education, those distributions are designed to give more uplift to those at the lower levels. I am happy to correspond with her on anything specific that she wants to bring to my attention, obviously within the devolution framework.

I thank the Chief Secretary for his statement. The average time that it takes a first-time buyer to save for a deposit has climbed to a record high of 10 years, often meaning that only the most privileged in society can afford to get a foot on the housing ladder. With wages stagnating and high rents hindering saving, what steps are the Government taking to support individuals wishing to purchase their first property?

The Government have an extensive programme led by the Secretary of State for Levelling Up, Housing and Communities. I am sure that he would be happy to set out the further work he is doing in advance of the autumn statement.