TUC General Secretary Frances O’Grady

Analysis published today (Friday) by @The_TUC shows how the economic recovery can be sped up by reversing cuts to key workers’ pay. 

The analysis by the TUC and Landman Economics models the economic impacts of reversing cuts to the value of public sector pay that took place over the period 2010/11 to 2020/21.

It finds that England’s economy would receive a £3.3 billion boost, speeding up recovery from the pandemic and making pay rises for other workers more likely too – the ‘pay circle’ effect.

The move would make 4.3 million public sector workers better off – in some cases by thousands of pounds a year.

The £3.3 billion economic boost is based on restoring median public sector pay by 3.2% in line with CPI inflation.

As this is a median figure, some workers would need a higher increase to restore the real value of their pay. For example, between 2010/11 and 2020/21:

  • Maternity care assistants’ and nursery nurses’ pay was down by £2,000 (-7.6%)
  • Nurses’ and community nurses’ pay was down by up to £2,500 (-7.3%)
  • Firefighters’ pay was down by £2,600 (-7.4%)
  • Teachers’ (M6, outside London) pay was down by £2,000 (-5.1%)

The TUC also cautions that CPI can underestimate the degree to which the cost of living is rising. And in pay negotiations, RPI is often a better guide.

If the Chancellor restored median public sector pay by 10.1%, in line with RPI inflation it would boost the economy by £10.5 billion.

Regional and local impacts 

Reversing pay cuts in line with CPI inflation would boost England’s regional economies by:

  • £157 million in the North East
  • £471 million in the North West
  • £322 million in Yorkshire and the Humber
  • £330 million in the West Midlands
  • £243 million in the East Midlands
  • £288 million in the South West
  • £741 million in the London
  • £313 million in Eastern England
  • £461 million in the South East

At constituency level, it would mean economic boosts of:

  • £6.2 million on average per English parliamentary constituency
  • £7.6 million for the Chancellor’s Richmond (Yorkshire) constituency
  • £30.6 million for Bethnal Green and Bow – the English constituency with the highest rate of child poverty (End Child Poverty)
  • £9.7 million for Birmingham Hodge Hill – the English constituency with the highest unemployment count (ONS)

Pay cuts for public sector key workers in 2021/22

The Chancellor has put in place a pay freeze that is affecting the majority of public sector key workers, such as police, teachers and civil servants.

Those currently earning less than £24,000 will get a guaranteed pay rise for one year of £250, but this is not a permanent and will not be consolidated into their pay for future years.

Pay offers have been made of 1.5% for higher education staff, 1.75% for local government staff, and a 3% pay award for NHS staff.

But many key workers in the public sector are excluded from these awards, including outsourced NHS staff such as cleaners and porters.  

And with CPI inflation currently 3.2% and RPI inflation currently 4.8%, all these workers are likely to find they that the value of their pay has been cut this year.

The TUC says that, in addition to restoring the value cut from pay between 2010/11 and 2020/21, the Chancellor must make sure that in the current year – and the years covered by the forthcoming spending review (27 October) – pay for all key workers rises each year at least in line with inflation.

Protecting the pay circle

The analysis is part of a policy briefing sent by the TUC to all MPs today, which sets out the importance of protecting the pay circle – the chain of spending that connects workers’ wages around the whole economy.

The policy briefing calls on government to avoid the mistakes of the last decade when pay freezes and caps damaged the pay circle. Consumer spending and economic demand were reduced, affecting all workers. Living standards fell for workers across both the public and private sector. And the UK suffered the longest pay slump for 200 years.

The TUC argues that former Chancellor George Osborne failed to recognise that all workers are connected in the same pay circle. When nurses, care workers, teachers and other public sector key workers are forced to cut their spending, it impacts on the wages of other workers too.

The union body is calling on the government to protect the pay circle and prioritise pay rises for public sector key workers across the period of the forthcoming spending review.

The TUC argues that everyone in the pay circle will benefit when public sector workers spend their wages in private businesses and services. And the national finances will recover faster as wage growth boosts government revenue.

TUC General Secretary Frances O’Grady said:

“We’re all part of the same pay circle. When key workers spend their pay, it goes into other people’s pay packets. Nurses, carers, shop staff, drivers, small businesses – right around the economy, we’re all connected.

“It is up to government to keep the pay circle moving. If the Chancellor gives key workers the pay rises they’ve earned, it will protect the spending businesses need to recover. And that will help other workers get pay rises too.

“But if the Chancellor attacks the pay circle in his spending review, everyone will suffer. And we could have another slump in living standards across the whole economy.”

Economic boost from reversing real-terms public sector pay cuts between 2010/11 and 2020/21

Region

Boost to economy after multiplier: CPI increase (£)

Boost to economy after multiplier: RPI increase (£)

North East

157,370,000

496,700,000

North West

470,513,000

1,485,057,000

Yorkshire & Humber

321,553,000

1,014,901,000

West Midlands

329,565,000

1,040,189,000

East Midlands

243,121,000

767,350,000

South West

287,595,000

907,720,000

London

740,545,000

2,337,344,000

Eastern

313,025,000

987,985,000

South East

460,557,000

1,453,632,000

ENGLAND TOTAL

3,323,843,000

10,490,879,000

Cost to government of restoring public sector pay to the same value as 2010 (net of income tax and national insurance receipts, and universal credit payment reductions)

Rate of pay restoration

Net cost to Exchequer

Boost to economy

CPI – 3.2%

£2.56bn

£3.32bn

RPI – 10.1%

£8.07bn

£10.49bn

Methodology: Landman Economics and the TUC used ONS data on the number of public sector workers in English Constituencies and regional and national data on public sector pay from the Annual Survey of Hours and Earnings (ASHE) to calculate the lost value of public sector pay since 2010, and what would be required to restore its value, using both the CPI and RPI measures of inflation.

Landsman/TUC calculated the economic benefit which each constituency would derive from restoring the value of public sector pay to its 2010 value in real terms using the mid-point of the International Monetary Fund’s (IMF) range of multipliers for government spending (1.3%).

To accurately reflect the economic boost from raising pay, it was necessary to take account of the way Universal Credit payments are tapered down and National Insurance Contributions (NICS) and income tax (IT) go up as recipients pay increases. To do this, Landman/TUC calculated the number of public sector workers in receipt of Universal Credit (UC) in each region, using the Family Resources Survey (FRS). This was used to create an average impact of the credit taper for each region, and which was applied to each constituency within that region (it was not possible to derive data on benefit recipients at a constituency level because the FRS does not hold information below a regional level). They then modelled the impact of increased gross public sector pay on net incomes given UC, IT and NICS.

Parliamentary briefing: A briefing containing locally relevant data has been sent today to every MP in England. 

Spending review: The Chancellor will present a spending review alongside the budget on 27 October. The three-year review will set government department budgets and devolved government block grants for 2022/23 to 2024/25. The budgets that are set will affect the scope for public sector pay and staffing across the period. 

Child poverty in key worker families: Research published by the TUC earlier this year found that just over a million children in key worker families are living below the poverty line, representing 21% of children in key worker households.

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