 Junior doctors had been offered a 22.3% pay rise to end strike action. Train drivers have been offered a 15% settlement, teachers and nurses have been offered a 5.5% settlement. Such spending on public sector pay will not easily be absorbed into more restrictive fiscal targets from The Chancellor..
In 1948, Aneurin Bevin was asked how he had achieved an accommodation with doctors in the creation of the National Health Service. He explained he did it by “stuffing their mouths with gold”. A generous pay award and the right to treat private patients as a sideline helped. Starmer and Reeves appear to be using the same technique to resolve conflict in the public sector. “Stuffing Their Mouths With Gold’, with generous pay awards. More savings on spending, or higher taxes will have to be found to pay for the awards. Even the triple alliance of the big three taxes may be at risk at the onset of the new Labour Five year term. Only a quarter of voters believe that Labour’s public sector pay deals are affordable, according to recent polling for The Times. YouGov polling suggests only a third of voters think the party has handled the problem well. Almost 40 per cent of those questioned said the government had handled the issue badly, including 15 per cent of those who supported the party at last month’s election. A quarter of voters said they thought the deals would make future strikes more likely, while a third said Labour was too close to the trade union movement. Only 22 per cent said that the party had got the balance right. The government is preparing to publish its long-awaited workers’ rights package when parliament returns next month amid concerns from business leaders that it will strengthen the hand of the unions and raise costs for companies. The Federation of Small Businesses has warned confidence among small business owners fell back into negative territory in the second quarter of the year, largely due to higher private sector wages. The Trades Union Congress (TUC) is expected to press Labour for “pay restoration”, to make up for a decade of public sector real-terms salary cuts, when it holds its annual conference next month. Economists estimate that each one percentage point rise in the public sector pay bill would cost taxpayers about £2.5 billion. To restore public sector pay to the 2011 level in real terms would theoretically require a 21 per cent increase, of more than £50 billion. The survey found that despite worries about the cost, a majority of people were in favour of ministers agreeing pay deals to end the strikes. Just over 40 per cent said the 14 per cent three-year pay deal for train drivers was the right thing to do, while 38 per cent insisted it was wrong. The 22 per cent deal offered to junior doctors was backed by 57 per cent of voters but opposed by 27 per cent. The Tories had budgeted for an increase of just 2% in public sector pay deals. The imposition of a pay cut in real terms was never really realistic. The hidden costs of low pay deals are huge. They include, strike action and disruption. Increased waiting lists in the NHS, low grades in schools and increased waiting times on platforms. Low pay results in low morale, high staff turnover, increased recruitment difficulties, high training costs and huge on boarding challenges. Stuffing their mouths with gold may appear to be an expensive solution. Stuffing their mouths with “suckanhock and wampum”, makes low pay deals too difficult to swallow leading to a greater increase in cost. References ... Suckanhock a dark-coloured kind of shell -money, Wampum a traditional shell bead. Only a quarter of voters believe Labour pay deals are affordable … The Times Rising Costs Sap Confidence of Small Business ... The Times
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 “There is a budget coming in October and it will be painful” , Starmer warns in a Downing Street speech this week …
This could mean the Autumn budget could be not so much a Happy Halloween event, but more a Horror Halloween event. More Tricks than Treats in prospect from the new Chancellor of the Exchequer. Rachel Reeves has already warned of difficult decisions and the need for tax rises in the October budget. The borrowing figures for July continued to be “above forecast” increasing the probability of tough decisions ahead. Borrowing in the first four months of 2024-25 totalled £51.4 billion. This is just £0.5 billion below the same period last year and £4.7 billion above the monthly profile consistent with the latest OBR forecasts. The OBR explains, the difference with the forecast profile in the July data, is driven by higher spending by government departments, as a result of strong growth in public sector pay. Receipts are broadly in line with profile in the year to date the OBR said. It looks as if the OBR forecasts for the year of £80 billion will be exceeded significantly. The running rate (year on year basis) suggests borrowing this year will be around £120 billion. The consensus forecasts for borrowing PSNB basis this year is around £106.4 billion well ahead of the OBR outlook in March of £80 billion. The Chancellor has strongly hinted there will be tax rises in the autumn budget as she promised to be "honest" about "difficult" decisions that lie ahead. The public had been "misled for too long" about the state of the country's finances. "There will be more difficult decisions" around spending, welfare and tax, she added, when asked whether people should be prepared for taxes to be increased in the autumn. Watch My Lips No Increase in Major Taxes … During the election campaign, Ms Reeves promised not to increase major taxes on national insurance, income tax and VAT. But there was speculation that Labour could target other taxes, including capital gains tax, inheritance tax and employers national insurance charges. No increase in the levels of income tax allowances would mean the “fiscal drag” bonus would continue. The Tory cut in National Insurance charges may be reviewed following the assessment by the Prime Minister ‘Things are worse than we ever imagined. Speaking at a press conference shortly after announcing a series of spending cuts to make up part of a £22 billion funding shortfall, the Chancellor said … "The truth is we did not know about the £22 billion black hole this year when we went to the polls on 4th July. There will be more difficult decisions around spending, around welfare and around tax at the budget and the spending review later this year.” The chancellor announced a series of spending cuts, including cuts to the winter fuel allowance, which will now only go to those in receipt of pension credit. More cuts are expected in the budget along with the tax rises. More tricks, fewer treats in the Horror Halloween event. It’s going to be a cliff hanger … let’s hope it doesn’t damage the growth ambitions too much moving forward.  Britain’s economy received an upgrade from Wall Street this month. Official data showed another quarter of growth in the second quarter. Growth in Q2 was up by 0.9% year on year, following growth of 0.3% in the first quarter, according to official figures from the ONS, the Office For National Statistics.
Service sector performance pushed the economy higher, despite sluggish growth in manufacturing and a setback in construction. Bank of America raised its forecast for UK Gross Domestic Product (GDP) in 2024 from 0.8% to 1.1%. Optimism was also evident in the latest edition of Forecasts For The UK Economy published by HMT in August. The average forecast for growth this year increased to 1.1% from 0.9% prior month. Forecasts for growth in 2025 increased to 1.25%. The Bank of England was even more optimistic in the Monetary Report this month. Growth is expected to be 1.25% this year, easing to 1.0% next. Perhaps the Bank is more concerned about the autumn budget than others, but more on that later. For the moment, the growth estimate of 1.1% is fair value. This will require a significant improvement in the performance of the economy in the second half of the year. The latest Flash UK PMI Composite Output Index at 53.4 this month up from 52.8 in July, is supportive of the growth upgrade but it won’t be easy. The latest data in general was a case of the good, the bad and the ugly. Growth figures were good, inflation data casting a note of caution. The borrowing figures were challenging, causing deep concern amongst Treasury watchers ... |
The Saturday EconomistAuthorJohn Ashcroft publishes the Saturday Economist. Join the mailing list for updates on the UK and World Economy. Archives
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