Rishi Sunak delivered a staunch defence of the public sector pay freeze today saying state workers enjoyed a 7 per cent premium even before coronavirus hit, and the gap is widening.
The Chancellor insisted he could not completely shield government employees from pain amid mass job losses and cuts in income for the private sector.
From March to September, year-on-year private sector wages dropped by 1 per cent, whereas public sector pay rose 4 per cent.
Unveiling his spending review yesterday, Mr Sunak announced pay will be frozen for around 1.3million public sector workers next year, but NHS workers and those in the lowest paid jobs will still get an increase.
Chancellor Rishi Sunak insisted he could not completely shield government employees from pain amid mass job losses and cuts in income for the private sector
The annual rate of change in total weekly earnings in the private sector in August alone looked slightly brighter at 1.3 per cent – although it was still far below the public sector at 3.6 per cent
However, the news drew fury from unions, while Labour accused ministers of a ‘kick in the teeth’ for state staff.
In a round of interviews this morning, Mr Sunak said public sector wages have been ‘generally higher’ than those in the private sector.
He said the ‘disparity’ existed before the coronavirus crisis, and that ‘even when you take into account characteristics and pensions, there was at least a 7 per cent pay premium for public sector’.
He told Sky News: ‘That pay premium has certainly widened in the last six months, because what we’ve seen over the last six months is private sector wages have fallen by a percent and public sector wages have risen by around 4 per cent.
‘On top of that, people in the private sector are losing their jobs, their hours are being cut, they are being furloughed – none of that is happening in the public sector.
‘So given the context, I couldn’t justify an across the board, universal pay increase for the public sector.’
Unions have warned the Chancellor that there would be a chance of industrial action if he went ahead with the move.
Meanwhile, Labour said capping salaries would be an ‘absolute kick in the teeth’ for frontline workers after their efforts during the coronavirus crisis.
This graph from the National Institute of Economic and Social Research shows public and private pay growth (per cent per annum, excluding bonuses)
By 2025 the UK’s debt pile will have hit an eye-watering £2.8trillion – and will still be more than 100 per cent of GDP
The government is forecast to borrow at least £100billion in every year of the OBR’s forecast period
It emerged yesterday that Britons could face up to £46billion in tax rises and spending cuts to get spiralling government debt under control.
The Office for Budget Responsibility warned that borrowing is on track to hit £394billion this year as the economy shrinks by 11.3 per cent – the worst recession in more than 300 years.
In its first forecasts since March, the Treasury watchdog said the economy will not be back to pre-crisis levels until the end of 2022.
It warned ‘scarring’ from the pandemic will mean the economy is between 3 per cent and 6 per cent smaller by 2025 than it otherwise would have been.
As a result people face having to pay more to keep the government afloat. The OBR says that ‘merely to stop debt rising relative to GDP’ tax rises or spending cuts worth between £21billion and £46 billion will be required.
Adding a penny to the basic rate of income tax only brings in roughly £6billion, meaning some combination of deeper spending cuts or higher taxes are likely to be needed in the next few years.
In cash terms, total debt is set to hit an eye-watering new high of £2.8trillion by 2025, after the government’s deficit hit a peacetime record this year. The OBR predicts that ministers will be borrowing at least £100billion a year into the middle of the decade.
It warned that this increased debt would leave the economy more vulnerable to ‘future shocks’.
The jobless rate – currently around 4.8 per cent – is set to peak at 7.5 per cent in the middle of next year, equivalent to 2.6million people on the dole.
The deficit easily exceeded its previous peacetime high as the government scrambled to respond to the crisis
The OBR produced three different scenarios, with the downside versions considerably worse than its central expectation