Beyond COvid: The Digest

Public sector pay freeze

November 24, 2020
SUMMARY
  • Our In Focus section this week examines the Chancellor's proposal of a public sector pay freeze.
  • Read our In Brief and Reflections sections for the latest research and analysis around economic recovery and reform Beyond Covid.
  • To get in touch with feedback or suggestions for next week's Digest, email Michael on michael@beyond-covid.org.

In Focus: Public sector pay freeze

  • Pay freeze: In tomorrow’s Spending Review announcement, the Chancellor will give details of a pay freeze for most of the UK’s 5.5 million public sector workers (approximately 17% of the total workforce).
  • ~~NHS exemption? It is unclear whether the exemption for NHS staff will apply only to frontline staff or to the entirety of the NHS workforce.
  • ~~Cap for carers? The pay freeze will not apply to most care workers as most are not public sector employees - meaning they were exempt from the public sector pay rise earlier this year - but many will be affected by the parallel freeze in the National Living Wage. Former health ministers of both parties have called on the Government to secure a pay rise for care workers (Guardian).
  • Recent history of public sector pay: While public sector workers have seen pay rises in recent years, the public sector pay freeze lasting from 2010 to 2018 means that - in real terms - public sector wages in Q1 2020 were 1.5% lower than a decade previously.
  • Why now? The stated rationale for the freeze is two-fold.
  • ~~Low private sector pay. First, the Chancellor argues that “restraint” is necessary for public sector pay to maintain “parity with the private sector”, which has seen wages and employment fall sharply as a consequence of Covid-19.
  • ~~Public finances. Second, supporters of the freeze argue that “the government has paid out billions to rescue the economy from collapse… the nation will have to pay for these massive emergency measures — sooner, rather than later” (The Times).
  • Could this undermine recovery? Questions of fairness aside, freezing pay for a large part of the workforce could threaten the UK’s efforts to recover from Covid-19 - which would ultimately harm public finances and further depress private sector pay.
  • ~~Public-private sector pay interactions. There is evidence that restraint on public sector pay can have spillover effects into low private sector pay, both as a result of macroeconomic effects and by ‘anchoring’ lower wage expectations in the private sector. Recent research from Australia has examined these dynamics in the context of the Global Financial Crisis.
  • Now is not the time for fiscal consolidation. A wide range of economists now argue that premature attempts to tighten spending would have adverse effects, including:
  • ~~Senior policymakers: IMF Director Kristina Georgieva warned the Chancellor last month that “now is not the time to balance the books”, while former member of the Bank of England’s Monetary Policy Committee Andrew Sentance branded the pay freeze “the economics of the madhouse”.
  • ~~Neoliberal thinkers: Julian Jessop, fellow of the right-wing think tank Institute for Economic Affairs, highlighted that a pay freeze would depress household spending: “there’s no rush to fill any fiscal gap... [The chancellor] should do everything he can to support the recovery: teachers and civil servants are consumers too”. Sam Bowman, ex-Director of (self-described) neoliberal Adam Smith Institute, went further: “this obsession with balancing the books, even during a once in a century pandemic, is pathological”.
  • “Fiscal stimulus is fiscal responsibility”: New research from progressive think tank IPPR has highlighted the scale of stimulus necessary to support economic recovery from Covid-19 and avoid “scarring” in the economy - in particular the private sector labour market. Further, they argue that in the longer-run, stimulating the economy would leave the UK with a lower debt-GDP ratio by supporting economic activity and raising tax receipts (Twitter thread).
  • Rebuilding the public sector. While “levelling down” public sector pay is likely counter-productive in the short-term for the reasons above, it is worth looking at what the suggested pay freeze signals for economic policy over the longer-term.
  • ~~Austerity revisited? Johnson and Sunak have been at pains to emphasise that the freeze would not constitute a “return to austerity”, it is worth noting that one of the effects of the last round of austerity was to bring public sector pay relative to the private sector to a 25-year low, “likely exacerbating recruitment and retention difficulties”.
  • ~~Public sector capacity. This, along with the 25% cut in public spending per person (excluding health) since 2010 has undermined public services. Times columnist and former Cameron speechwriter Clare Foges has written on how widespread - and often suspect - reliance on outsourcing during the pandemic has “proven the need to restore expertise and capacity to the public sector”.
  • ~~Government priorities. The question is whether the public sector pay freeze - and how long it lasts - risks sending the wrong message on the Government’s approach to rebuilding public services. The FT’s Delphine Strauss writes that the freeze has “laid the government open to charges of squeezing frontline staff to pay for futuristic military equipment and controversial Covid contracts.”

In brief

  • Green Industrial Revolution. To catch up and meet the UK’s legally binding net-zero targets, the Government announced a £12bn "Ten Point Plan for a Green Industrial Revolution". Carbon Brief curated media responses to the plan, leading with "Green plan 'far cry' from hitting UK's net zero targets".
  • ~~Insufficient ambition. Climate groups argued the plan still doesn't close the gap between the current emissions trajectory and their legally binding targets, and commits less than other developed economies to green recovery.
  • ~~Deeper change needed. The government’s approach is emblematic of a wider strategy of lowering emissions whilst maintaining current patterns of consumption. Taking transport as an example, this could hinder progress towards net-zero, as IPPR’s Luke Murphy argued: “If we attempt to replace vehicles one-for-one, it will be a huge draw on environmental resources. We need to reduce car use overall, which means greater investment in sustainable public transport options”.
  • Protecting households over winter. The New Economics Foundation launched their “Winter Plan for Jobs, Incomes and Communities”, calling upon the government to provide a minimum income guarantee, protect furloughed jobs and invest to create over a million new low-carbon jobs.
  • Reforming Social Care. Sarah Olney MP, Liberal Democrat spokesperson for the climate emergency, business & energy and transport explained why care should be at the heart of climate policy on the Green Alliance blog.
  • ~~Cross-party support. Lord Forsyth of Drumlean, chairman of the House of Lords Economic Affairs Committee argued there is cross party support for a ‘Long-Term Plan for social care’ and expressed support to IPPR and Policy Exchange’s collaborative project on social care reform.
  • ~~Saunas for OAPs. Autonomy released a new report outlining a long-term proposal for the reform of social care, calling for Long Term Cooperative Day Care Centres (LTCCs) to cope with increasing demand on the NHS and address the challenges of an ageing population. (Express coverage here).
  • Northern Powerhomes. IPPR North released a green recovery plan to decarbonise homes in the North of England, arguing that an economic stimulus should form part of the government’s much-discussed agenda of ‘levelling up’.
  • Sick Pay. Alex Collinson wrote for the TUC calling for a rise in Statutory Sick Pay (SSP) following the introduction of a ‘flawed and inadequate £500 self-isolation payment’.

Reflections

  • Devolution. The Economist argued against the ‘misguided counter-revolution’ of centralisation of power away from devolved governments and towards Whitehall, which will continue beyond the departure of Dominic Cummings.
  • ~~The authors link centralisation to ‘chumocracy’ and pointed out that countries tended to handle the coronavirus pandemic better when they had more devolved responses (e.g. South Korea, Germany).
  • Politics of Green Recovery. Benjamin James Davies wrote for DiEM25 on Labour’s contrasting Labour’s Green Economic Recovery with the Conservatives’ ‘Green Industrial Revolution’, and examining why Labour abandoned the Industrial Revolution framing.
  • Key Workers. Alice Martin and Annie Quick explored what it would take for key workers ‘to become a transformational force in how we run the economy’, drawing from their new book Unions Renewed (Podcast here).
  • Working Time. Alfie Stirling and Anna Coote joined NEF’s weekly podcast to discuss their new book with Aidan Harper, exploring the case for a four-day week after the pandemic.

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