Sunak Set to Restrain Public Sector Pay to Rein in U.K. Spending

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Chancellor of the Exchequer Rishi Sunak is set to squeeze public sector pay for millions of workers as he seeks to rein in U.K. government spending to contain a spiraling budget deficit, people familiar with the matter said.

The announcement on pay restraint is likely to exempt health care workers who have been on the front line of the battle against coronavirus, according to the people. It’ll form part of a spending review the chancellor will deliver next Wednesday, laying out departmental budgets for the next fiscal year.

The decision on pay will be a blow to millions of teachers, police officers and civil servants, who just over a year ago were promised an end to almost a decade of austerity by Sunak’s predecessor, Sajid Javid. Once 1.8 million National Health Service staff are exempted, the move could hit 3.7 million public sector workers, according to Office for National Statistics figures.

“For reasons of fairness, we must exercise restraint in future” to ensure “public-sector pay levels retain parity with the private sector,” Sunak said in a letter to ministers when he kickstarted the spending review in July. He warned at the time of “tough choices” ahead.

The Treasury decision will be informed by ONS figures in September that showed public sector workers earn on average 7% more than those in the private sector, after including pensions and adjusting for skill levels and job characteristics.

A three-year pay freeze for all public sector employees would save 23 billion pounds, the Centre for Policy Studies, a conservative think-tank, said in a report Friday. Exempting National Health Service staff would cut the the savings to 15.3 billion pounds it said. The report also examined a scenario in which pay rises were limited to 1%, finding savings of 11.7 billion pounds over three years, shrinking to 7.7 billion pounds if NHS staff are allowed more generous settlements.

Sunak Set to Restrain Public Sector Pay to Rein in U.K. Spending

Sunak has repeatedly warned of the need to set the public finances on the path to stability, even as a second deadly wave of the coronavirus pandemic has forced him to extend generous support measures to help businesses and workers weather the outbreak. That’s put the budget deficit on course to reach a peacetime high of about 370 billion pounds ($490 billion), according to the average November estimate of economists in a Treasury survey.

The chancellor last month cut the spending review from three years to one because of the “unprecedented” economic uncertainty wrought by the virus. Even so, he’s promised some longer term settlements for priority infrastructure, the National Health Service and schools, and on Thursday, Prime Minister Boris Johnson announced 24.1 billion pounds of new defense spending over four years -- a 16.5 billion-pound uplift on his election promises.

©2020 Bloomberg L.P.

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