Analysts have called on the lifting of the public sector pay cap to result in a “significant” real terms salary increase for NHS staff, which would make up for years of pay freezes and also benefit the economy.
The Institute for Public Policy Research think-tank also said the government should provide funding for the increase, rather than expecting NHS employers to pay for it within already over-stretched budgets.
“The chancellor must use his Autumn budget to provide the additional funding that the NHS needs to give the workforce the pay rise they deserve”
In a new report, published today, economic analysts said that ministers could afford, as a minimum, to raise pay in line with consumer price inflation (CPI), or increase it to reflect private sector wages through a “catch up” approach.
The economic analysts claimed that boosting NHS pay in line with CPI between now and 2019-20 would cost the UK government an extra £1.8bn every year by that point – in comparison with its recently abandoned plan to keep wages restricted to an annual 1% rise.
But because more tax would be recouped as a result, the rise would in fact only cost the government £1.1bn, said the analysts in the Lifting the Cap report (see attached PDF below).
Meanwhile, the associated increase in household spending – leading to an extra £250m GDP by 2019-20 – would also result in extra tax income, meaning the final annual cost to the government is estimated to be £950m.
However, the experts said raising salaries in line with CPI would not reverse any of the real-terms cuts to NHS pay that have been ongoing since 2010-11.
The IPPR said this pay freeze meant a band 5 nurse was now effectively earning £3,214 – or 10% – less than they would have done in 2010.
“The report is a timely reminder that previous budgets forced year after year of real-terms pay cuts on frontline staff”
To help address this, a “catch up” option would be to raise NHS pay in line with private sector earnings, plus an extra 1% on top each year, said the analysts.
This would mean a band 5 nurse seeing a third of their pay cut since 2010 reversed – through a £1,000 increase in wages by 2019-20.
The IPPR said this was also an affordable option for the government because, although the extra annual cost would be £3.9bn by 2019-20, it would fall to £2.3bn after higher taxes and lower welfare payments to NHS staff were taken into account.
Again, higher spending by households would boost the economy, generating an extra £550mn in GDP and leading to further tax receipts for the Treasury. This would mean the extra cost of the salary rise – compared with keeping a 1% cap in place – would be £2.1bn overall, said the IPPR.
However, the analysts stressed that, while both options for raising pay would cost less than they initially appeared, the rise should still be funded by the government.
They warned that if trusts had to pay for the increase from existing budgets then the financial crisis in the NHS would escalate and patient care would suffer.
“The report rightly points out than when assessing the cost of lifting the pay cap, we need to review the total impact for the Treasury”
IPPR senior research fellow Joe Dromey, who co-wrote the report, said: “The seven year pay squeeze has not just hit NHS staff hard, it has contributed to a growing workforce crisis.
“But any additional increase must be funded,” he said. “NHS trusts are already running huge deficits; requiring them to find the additional funding from existing budgets risks compromising the quality of care, and the sustainability of the service.”
“The chancellor must use his autumn budget to provide the additional funding that the NHS needs to give the workforce the pay rise they deserve,” he added.
The Royal College of Nursing said the IPPR’s analysis showed a pay rise in line with inflation was not just fair for nurses, but also benefited the Treasury by boosting the economy.
“The report is a timely reminder that previous budgets forced year after year of real-terms pay cuts on frontline staff,” said RCN chief executive and general secretary Janet Davies.
“Next month, after already telling the Commons it has scrapped the cap, the government must find the money to make it meaningful for NHS workers,” she said.
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NHS Providers, which represents NHS employers, said it welcomed the IPPR report and called for the government to provide a clear plan, following its promise to end the cap.
“The report rightly points out than when assessing the cost of lifting the pay cap, we need to review the total impact for the Treasury and wider economy not just the headline cost associated,” said NHS Providers’ head of analysis, Phillippa Hentsch.
“The options explored in the report are two possible scenarios for ending pay restraint and we support the independent pay review bodies in their role of making recommendations on NHS pay,” she added.
Chancellor Philip Hammond is due to give his autumn budget speech on 22 November.
A Treasury spokesman said: “Our public sector workers, including NHS staff, deserve fulfilling jobs that are fairly rewarded. We have already confirmed that the across-the-board 1% public sector pay policy will no longer apply. The independent pay review process is now underway for NHS staff and will report in spring 2018.”