Raising pay for public sector workers in key services by 10 per cent would not add to inflation, a new report has found today.
Analysis by IPPR has found that a 10.5 per cent pay boost to restore real pay to 2019/20 levels – higher than the rises announced by the government last week – would add at most 0.14 percentage points to inflation if funded by borrowing.
This undermines objections that higher public sector pay would cause significant demand-driven inflationary pressures, the report says.
The effect would be smaller still, approaching zero, if the additional pay boost was financed from taxation.
The report also reveals that if an average public sector worker were to receive a pay award around the 6 per cent announced last week they would still be £1,400 worse off this year on average than just before the pandemic, because wages have not kept up with prices.
Pay for public sector workers reached its lowest point in nearly two decades last year, when adjusted for inflation.
Carsten Jung, senior economist at IPPR and one of the report’s authors, said: “The government’s claim that by protecting public sector pay we would hugely increase inflation is a red herring. The analysis which the government itself cites shows that restoring real pay to pre-pandemic levels would have only a marginal impact on inflation.
“Addressing the workforce crisis in the public sector requires restoring decent pay. This will require funding it through higher and fairer taxation – which the government is shying away from.”