No10 has warned furious NHS staff, teachers and civil servants that bigger pay rises can only happen if they get more productive.
Labour is scrambling to contain a backlash from unions after proposing a 2.8 per cent limit on salary increases next year.
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The figure immediately sparked threats of a fresh wave of strikes, with public sector workers branding it a ‘joke’. The Treasury’s OBR watchdog is forecasting CPI to average 2.6 per cent next year.
But the PM’s spokesman said this afternoon: ‘Real terms pay increases must be matched by productivity gains and departments will only be able to fund pay awards above inflation over the medium-term if they become more productive and workforces become more productive, it will obviously now be for the pay review bodies to consider the evidence that’s been submitted and returned with their recommendations.’
The clashes came amid mounting evidence the economy is stalling after Rachel Reeves’ monster Budget tax raid hammered business confidence.
Firms have warned they face cutting jobs, suppressing wages and raising prices to ease the impact of the national insurance increase, minimum wage rise and new employment rights.
Labour is scrambling to contain a backlash after proposing a 2.8 per cent limit on salary increases next year. Pictured, Keir Starmer and Rachel Reeves
The figure would cover education, health and the senior civil service – who received increases of between 4.75 per cent and 6 per cent this year (pictured, junior doctors striking in June)
Touring broadcast studios this morning, Justice Secretary Shabana Mahmood urged unions to recognise Labour’s ‘extremely difficult’ economic inheritance
he clashes came amid mounting evidence the economy is stalling
Touring broadcast studios this morning, Justice Secretary Shabana Mahmood urged unions to recognise Labour’s ‘extremely difficult’ economic inheritance.
She insisted that the pay review bodies had yet to make their final recommendations, after the government’s submission.
She told BBC Breakfast: ‘So what I would say to trade unions and everybody else workers alike, that this is the start of that process, and of course, I would hope that they recognise that the Government’s fiscal inheritance has been extremely difficult, and we do have to make sure that the books overall balance as well, and that pay is on a sustainable footing.
‘This is the start of that process, and I wouldn’t want to get ahead of where we think the pay review bodies might ultimately make their recommendations.’
In its evidence to pay review bodies, the Treasury noted how it had accepted ‘difficult trade-offs’ to deliver the ‘first real terms pay increases for several years’ for 2024/25.
Turning to the 2025/26 recommendations, the department pointed to the Office for Budget Responsibility’s (OBR) forecast of CPI inflation at 2.6 per cent for 2025/26.
It also said there was an OBR expectation of ‘moderate’ wage growth, at 3 per cent, across the wider economy over the next financial year.
But trade union leaders branded the recommendation of a 2.8 per cent pay rise for 2025-26 ‘deeply offensive’ and disputed whether it would match inflation.
Paul Johnson, director of the influential economics think tank the Institute for Fiscal Studies (IFS), said it was ‘not a bad ballpark figure’ and feels ‘just about affordable’ given the Government’s public spending plans.
The downside, he said, is that public sector workers have lost out since 2010 and unions will be upset that this is not making up the gap, he told Sky News’ Politics Hub with Sophy Ridge.
‘But given the constraints facing the Chancellor I think it’s pretty hard to argue for more for public sector pay when public sector services … are under real strain,’ he said.
The Royal College of Nursing general secretary and chief executive called for ‘open direct talks now’ to avoid ‘further escalation to disputes and ballots’.
Professor Nicola Ranger said: ‘The Government has today told nursing staff they are worth as little as £2 extra a day, less than the price of a coffee.
‘Nursing is in crisis – there are fewer joining and too many experienced professionals leaving. This is deeply offensive to nursing staff, detrimental to their patients and contradictory to hopes of rebuilding the NHS.
‘The public understands the value of nursing and they know that meaningful reform of the NHS requires addressing the crisis in nursing.
‘We pulled out of the Pay Review Body process, alongside other unions, because it is not the route to address the current crisis.
‘That has been demonstrated today.
‘Fair pay must be matched by structural reform. Let’s open direct talks now and avoid further escalation to disputes and ballots – I have said that directly to government today.’
Professor Philip Banfield, chairman of the British Medical Association’s council, urged the sector’s pay review body to ‘show it is now truly independent’.
‘For this Government to give evidence to the doctors’ and dentists’ pay review body (DDRB) believing a 2.8% pay rise is enough, indicates a poor grasp of the unresolved issues from two years of industrial action,’ he said.
He said the proposal is far below the current rate of inflation and that the Government was ‘under no illusion’ when doctors accepted pay offers in the summer that there was a ‘very real risk of further industrial action’ if ‘pay erosion’ was not addressed in future pay rounds.
‘This sub-inflationary suggestion from the current Government serves as a test to the DDRB.
‘The BMA expects it to take this opportunity to show it is now truly independent, to take an objective view of the evidence it receives from all parties, not just the Government, and to make an offer that reflects the value of doctors’ skills and expertise in a global market, and that moves them visibly further along the path to full pay restoration.’
Sixth form teachers on the picket line in London last month, in a strike called by the NEU
The NEU’s general secretary, Daniel Kebede, said teachers’ pay had been cut by more than one-fifth in real terms since 2010.
‘Along with sky-high workload, the pay cuts have resulted in a devastating recruitment and retention crisis. Teacher shortages across the school system hit pupils and parents too.
‘A 2.8 per cent increase is likely to be below inflation and behind wage increases in the wider economy. This will only deepen the crisis in education.’
In a hint that there could be a return to industrial action he added: ‘NEU members fought to win the pay increases of 2023 and 2024.
‘We are putting the Government on notice. Our members care deeply about education and feel the depth of the crisis. This won’t do.’
