UK Headed for Clash With 2.5 Million Workers Over Pay Raises

(Bloomberg) -- About 2.5 million public sector workers in the UK will get pay raises this week, with unions threatening to walk off the job if the settlements fall too far short of inflation.

Doctors, nurses, teachers and police are prepared to strike if they’re asked to take real-term pay cuts, union officials said in advance of decisions that may come as early as Tuesday.

“The public sector unions are not happy and are talking about how they will respond,” said Kevin Rowan, head of organization and services at the Trades Union Congress.  “Usually they don’t test the government. But every union has said they are prepared to engage with members. In normal years that’s very rare.”

The awards pose Prime Minister Boris Johnson a major challenge in the waning days of his premiership. It also highlights tensions inflamed by a surge in the cost of living, with workers saying they need more money to avoid poverty and the Bank of England counseling restraint to prevent an inflationary wage-price spiral.

While increases to the annual £100 billion public sector pay bill are always fraught, this year the stakes are even higher. With inflation on course to hit 11% -- well in excess of the usual pace of pay increases -- workers in hospitals and schools are at risk of walking out if this year’s increase is similar to previous years.

The Treasury had suggested 3% as a guideline, but there are reports that offer could be lifted to 5%. Private-sector pay rises are averaging around 8% currently, though much of that has been granted through one-off bonuses. 

“In the private sector, employers have been working really hard to keep the faith of staff,” Rowan said. “Where they can afford it, they came in with big offers. Those employers see that they need to respond to the cost of living crisis.”

A nationwide round of strikes would deepen the sense of a crisis, setting up a chaotic backdrop to the contest in the ruling Conservative Party to replace Johnson. 

Rail workers, postal workers and barristers, whose pay is not directly set by the government, have been on strike or are planning strikes over summer, while some public sector unions have promised to ballot members for industrial action in October if wage offers fall short.

All candidates running to replace Johnson appeared to back a disciplined approach to pay to keep inflation in check. In Sunday night’s leadership debate on ITV (LON: ITV ), each of them warned about the risk of a wage-price spiral.

The issue is starting to captivate the attention of MPs across the political spectrum. Keir Starmer, leader of the Labour opposition, called for more action by the government to help people with the cost-of-living crisis. In an interview with Bloomberg on Monday, he wouldn’t be drawn on how much wages should rise.

Pressed on whether he would back a reported 5% increase in public sector pay if recommended by pay review bodies, he said, “Let’s see what they offer.” He said he wanted to see the government supporting pay negotiations but also pull more “levers” to help people manage with rising inflation.

“What worries me about the pay negotiations is you’ve got a government that’s really hands off, that says ‘nothing to do with us, we don’t need to lift a finger to help people through this cost of living crisis,’” Starmer told Bloomberg. “And that’s just not good enough.”

Some commentators suggest that higher-than-usual pay raises wouldn’t boost inflation much. 

The Institute for Fiscal Studies said on Monday that “fears of a ‘wage-price spiral’ in the public sector are overblown, given the fact that most public sector goods do not have market prices that can rise in response to higher wages.”

“One would have to believe that public sector pay awards act as an important benchmark for the private sector,” the IFS said. “This is certainly possible, but awards of 4 or 5% seem unlikely to push up economy-wide expectations in a way that awards of 10 or 11% might.”

Britain’s eight independent public sector review bodies submitted their recommendations to the government in recent weeks. A decision is expected shortly, probably this week before Parliament’s summer recess.

Ministers normally follows the advice of the pay-review bodies, since they balance retention issues against the cost for the public finances.

The Treasury had indicated it would ask departments to fund pay deals above the deals agreed in last October’s spending review through savings, including job cuts. A 5% settlement would cost £4 billion a year more than the forecast 3% deal.

Public service unions like Unison and Unite have demanded above inflation settlements, though union officials privately believe deals of around 5% or 6% may be enough to prevent strikes as health professionals and teachers tend to be reluctant to stage mass walkouts.

The decision ultimately lies with new Chancellor of the Exchequer Nadhim Zahawi, who took office when Rishi Sunak resigned earlier this month.

As Education Secretary, Zahawi asked for a 9% pay rise for new teachers and a 5% increase for senior teachers. Teachers unions have already expressed frustration at the offer.