So, the government has gone with option 1, sub-section c: accept the recommendations of the pay review bodies – with mostly no new money. This neatly avoids higher borrowing, inflation or taxation (more on that later), but means cash must be found from existing department budgets not exactly flush with the stuff to begin with.
The pay increases are as follows:
- Police: 7 per cent
- NHS: 6 per cent
- Junior doctors: 6 per cent
- Prison officers: 7 per cent
- Armed Forces: 5 per cent
- Teachers: 6.5 per cent
The response has been mixed. Teaching unions have said they will put the deal to members, with a recommendation to accept and call off strike action. But an offer of 6 per cent is unlikely to automatically bring the British Medical Association, which has called for a 35 per cent rise, back to the table.
The core benefit of today’s announcement is that it will provide the prime minister with some breathing space. Governments can survive the occasional strike, but having large swathes of the public realm malfunctioning at the same time is simply untenable. None of this, however, changes one fundamental reality. Taxes are too low.
Now, the public does not necessarily agree. But the Office for Budget Responsibility’s fiscal risks and sustainability report today makes for some absolutely dreadful copy. Essentially, if we take no action, UK debt is on an unsustainable trajectory, surpassing 300% of GDP in 50 years’ time. Of course, OBR projections will be wrong. All projections are wrong. But no one is querying the direction of travel.
This is not simply a consequence of the three shocks over the last few years: Brexit, Covid, and Russia’s invasion of Ukraine, but the challenges to come. These include an ageing population, climate change and national security threats, all of which will require vast levels of additional funding. And that’s without getting into the unknowns, known or otherwise.
That is why GDP growth (and not doing deliberately damaging things like leaving the EU) is so vital. We need to grow the economy and reduce debt-to-GDP ratios in the good times in order to make it through the bad. That is not something the UK has done for a while. Indeed, while every chancellor since 2010 has aimed to get debt falling, at 100 per cent of GDP, debt is at its highest level for more than six decades.
The UK pays a premium for its very weakness. While interest rates are rising everywhere, not just in Britain, according to the OBR the increase in global rates has “fed through to the UK’s debt servicing costs more than twice as fast as in the past or elsewhere.”
This is why we should be obsessed with economic growth. Because when it stops happening (and the UK has barely grown in the last four years) the graphs start doing really scary things. And taxes will rise to compensate for it.
In the comment pages, Robert Fox warns the Vilnius summit was disastrous if we want Ukraine to win its war. Duncan Bartlett asks whether our security services are up to the task of assessing the Chinese threat. While Isobel van Dyke says the Tube is an internet-free delight, so don’t ruin it.
And finally, the Printworks team are back with their biggest-ever venue. David Ellis hears why they’re promising nights like never before.
