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Relaxation of pay restraint could force further 'efficiencies'

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This week’s TUC conference has led to speculation about a ‘winter of discontent’ as unions consider concerted action against the government’s 1% public sector pay cap. 

Ministers have let it be known they are willing to embark on a phased retreat from the cap, with the police and prison officers likely to be the first groups given larger increases.

The 1% limit began during the coalition government and, like the deficit, has never gone away. The UK’s public finances remain in a parlous condition, with the Treasury holding to its 2015 spending review figures through to 2019-20. The key question now is: if ministers start to relax public sector pay constraints, will departments be allocated additional resources to cover the extra costs?

It is hard to see the government raising police pay without increasing central funding of the service. Without additional cash, higher pay will simply feed through to a smaller number of officers. The same is likely to be true of the NHS and schools if their pay caps are lifted: the powerful lobbies for these services will ensure the Treasury has to find more money, or there will be fewer nurses and teachers.

But, as and when local government officers are allowed increases above 1%, will the overall level of grant or retained business rates be increased? Or will more ‘efficiencies’ be expected to cover the gap? It is notable that in the same 2015 spending review, the government promised that by “2020 [councils] will be able to keep money from business rates collected from shops and businesses, to spend on local services like street repairs, libraries and transport”.

Demand for council services is rising as the population increases and becomes older. After seven years where local authority spending has fallen by 25-35%, there is little room for another round of deep cuts. The future of local government ‘core spending power’ is now a complex issue involving the base starting-point for 2018-19 and 2019-20, the ‘fair funding’ review, further retention of business rates and the relaxation of pay constraints. Decisions will have to be made soon within a Whitehall paralysed by Brexit.

Tony Travers, director, LSE London

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