More than 100,000 public sector workers would lose their jobs this year if the government refuses to fund higher than expected pay awards for nurses, doctors, teachers and care workers, according to the Institute for Fiscal Studies.
The IFS said the chancellor, Kwasi Kwarteng, faced a choice of either topping up public sector budgets or accepting the likelihood of industrial action, further problems recruiting and retaining staff, and a decline in quality of services already under extreme strain.
The thinktank added that if the government stuck to its current spending programme, its ambitious plans to clear the NHS operations backlog, level up primary education and overhaul social care would be “nigh on impossible”.
Although the average public sector pay settlement this year – about 5% – was below inflation currently running at almost 10%, it was also higher than the 2% to 3% rise anticipated in budgets drawn up a year ago, leaving a £5bn hole in public sector budgets.
Bee Boileau, a research economist at the IFS and an author of the study, said there were no easy options. “Offering higher pay awards without additional funding puts enormous strain on departmental budgets and requires painful cuts elsewhere. Not offering higher pay awards risks a wave of strikes and ongoing challenges with recruitment and retention.
“But providing additional funding to departments would mean offsetting spending cuts elsewhere, or a U-turn on some of the chancellor’s recent tax cuts if he is serious about having debt fall as a share on national income.”
Staffing costs are the biggest single element in services such as the NHS and local government. The public sector pay bill, covering 5.7 million staff, was £233bn in 2021-22, more than a fifth of all government spending, and a third of all spending on public services.
The average pay award this year is about 4% to 5%, with nurses awarded a 5% rise, dentists and senior doctors 4.5%, while settlements for teachers and local government workers vary, with lower paid staff getting more.
But even sticking to the average public sector pay award may not be enough to head off industrial action, the IFS said. Most workers will get a real terms pay cut at a time when prices and energy costs are soaring, leaving them lagging behind private sector counterparts expected to receive 6% on average.
The Royal College of Nursing is balloting its 300,000 members over strike action this winter. Other NHS workers, including junior doctors and physiotherapists, are also threatening industrial action.
A 10-year fall in public sector pay relative to the private sector has exacerbated problems that the NHS, local authorities and care firms have in recruiting and retaining staff – typified by reports of low-paid social care workers quitting to get better paid jobs in supermarkets.
A government spokesperson said: “Last year’s public sector pay awards were the largest in nearly 20 years, reflecting the vital contributions public sector workers make to our country. Awards for many workforces are targeted, with the lowest paid NHS workers, police officers and new teachers receiving around 9% pay boosts.
“Departments agreed to fund these awards within their existing budgets, with day-to-day spending expected to grow in real-terms over the spending review period.”
• This article was amended on 10 October 2022 to clarify that junior doctors, who remain subject to a multi-year pay deal agreed in 2019, are not covered by the 2022 pay terms announced by the government.
