Pay Raises Can Help Save the UK’s Public Sector

In the UK, chronic underinvestment has led to threadbare public services being delivered by an underpaid, overstretched workforce. Meeting striking public sector workers’ demands for higher pay is crucial to stopping the decline of vital services like the NHS.

Junior doctors hold placards at a picket line outside St Thomas' Hospital in London on July 13, 2023, in the biggest walkout in the history of the UK's state-funded National Health Service. (Henry Nicholls / AFP via Getty Images)

The United Kingdom’s public sector is in crisis. More than a decade of chronic underinvestment is now manifesting in threadbare public services delivered by an underpaid, overstretched workforce. What we’re witnessing is worse than postpandemic pressures — it’s the managed decline of the public sector itself.

The term “managed decline” is generally used to describe the deterioration of industries and places, not public services. Margaret Thatcher’s chancellor Geoffrey Howe infamously used it to describe why her government should effectively abandon the city of Liverpool during deindustrialization in the 1980s. But it could equally apply to government policy towards the public sector over recent decades.

The National Health Service (NHS) is a prime example. As the UK’s population grows older, public spending on health and social care needs to increase. But in the decade following the financial crash, the health service faced the most prolonged spending squeeze in history, forcing trusts to deprioritize investments in staff, infrastructure and prevention just to keep day-to-day services running. COVID accelerated and exacerbated the problems that built up as a result, leading to a growing backlog and heightened workforce pressures.

The consequences have been deadly: more than 7.5 million people are waiting in limbo for treatment, and failures in the healthcare system are contributing to hundreds of preventable deaths every week.

Inevitably, public satisfaction with the NHS has fallen to a forty-year low. Yet instead of committing to sufficient investment, the government expects the NHS to double its efficiency savings even while inflation eats away at health budgets. The health secretary is now calling on the private sector to step in and cut waiting lists.

This is what the managed decline of the public sector looks like. Public services are underfunded, they fail to deliver, and then public trust in them falls. Instead of increasing funding, the government puts more pressure on public institutions and looks for ways to bring in the private sector.

The overall effect is that the parameters of the public sector are pared back and private provision takes its place. It is a pattern that has played out in some form or another across the public sector, from housing to social care and local government.

Workers find themselves on the front line of this managed decline as they battle to deliver services in increasingly untenable conditions. No wonder recruitment and retention has reached a crisis point. The NHS workforce gap was the worst on record last year, with almost one in ten roles unfilled. These problems have been mounting for more than a decade: since 2010, the vacancy rate has increased by 400 percent for nurses and 500 percent for teachers.

Failure to invest in staff pay has driven this workforce crisis. Last year, pay for the average public sector worker reached its lowest level in real terms for nearly two decades. When inflation hit, real-terms income for public sector workers had only just recovered to preausterity levels after more than a decade of stagnation and decline. Price hikes then induced sharp declines in living standards, pushing incomes to a nineteen-year low.

Pay is crucial to recruitment and retention. More than half of civil servants who want to leave their jobs say it’s because they want better pay and benefits, and numbers leaving the civil service are at their highest level in more than a decade. Pay disputes have also been central to recent strikes, fueling the most significant wave of industrial action in the public sector since the 1990s.

The government’s claims that it can’t afford to give workers a genuine pay raise are purely political. We could afford above-inflation pay raises by making the UK’s tax system fairer. In the current system, a worker earning a wage or salary pays a higher share of tax than someone who makes money by owning an asset, like shares in a business. This means that asset owners can get rich while paying less tax than workers like nurses and teachers. We could afford above-inflation pay raises for every single public sector worker just by fixing that injustice.

Rishi Sunak’s claim that higher pay settlements fuel inflation isn’t true, either. Pay raises for public sector workers don’t have a direct impact on prices as public services are free at the point of use. Nor does raising pay affect prices indirectly if it is funded through taxation, since higher taxes counterbalance the additional money added into the economy. IPPR research finds that even if pay raises were temporarily financed through borrowing, the impact on inflation would be miniscule. An inflation-busting double-digit pay rise for every public sector worker would add, at most, a tiny 0.14 percent to inflation.

At a minimum, pay must not be allowed to fall below inflation again. But public sector workers deserve more: they should see the pay that they have lost in real terms since the late 2000s restored. When ministers dismiss calls from junior doctors for pay restoration as “unrealistic,” they willfully ignore the reality that doctors and other public sector workers have experienced severe hits to their incomes over the last decade.

Increasing pay will not stop the managed decline of our public sector on its own. Any nurse working in an overstretched hospital department or teacher in an understaffed school will tell you that you can’t improve public services without also investing in expanding the workforce and upgrading infrastructure. There are no silver-bullet solutions for rebuilding the public sector, but meeting the demands of striking workers is a good place to start.