Image source, Getty Images
- Author, Ben Chu
- Role, BBC Verification
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The new government used its first King’s Speech to set out its priorities for the coming year.
The bill covers areas such as housing, workers’ rights and green energy.
But some of the big challenges that Labour says it inherited were not directly addressed in the king’s speech.
Public sector remuneration
Decisions on pay rises for NHS staff, teachers, police and prison officers in England are due to be made by the end of this month, when the formal process of reviewing public sector pay for 2024-25 is due to conclude.
The Institute for Fiscal Studies (IFS) estimates that the government would need to find at least £7bn extra a year to prevent public sector workers’ wages falling further below those of their private sector counterparts.
IFS data show that while average private sector wages adjusted for inflation are around 4% higher than in 2010, those in the public sector are still around 2.5% lower.
The average salary of nurses fell by 6.5% during this period, that of teachers is lower by 9% and that of doctors by 15%.
Finding an extra £7bn a year would be very difficult given the government’s chosen budget rules, which limit its spending and taxing powers.
But if she fails to do so, she risks finding her targets for recruiting more teachers and nurses even harder to achieve – and even provoking further strikes in the public sector.
Local advice
Local authorities in England are in the midst of a financial crisis, with five having gone bankrupt since the start of 2023, leading to deep cuts to local services.
And this situation is doomed to get worse.
A survey of local authority leaders by the Local Government Information Unit earlier this year found that around 28 local authorities – or around one in ten – were likely to have to declare bankruptcy this financial year (2024-25).
And about half, or 160, said they were at risk of going bankrupt during this parliamentary term unless local government funding was reformed.
Ministers could give struggling municipalities direct financial aid to keep them afloat. But that would cost the Treasury dearly.
They could allow local authorities to increase council tax even further. They could also allow them to cut local services they are legally required to provide, such as social services, children’s services and libraries.
But neither option seems to be popular with local residents.
The universities
The £9,250-a-year tuition fee that English universities can charge domestic students has been frozen in monetary terms since 2017, contributing to a reduction in inflation-adjusted revenue per student for universities of around 18% over the past decade, according to the IFS.
If the fees had been increased using the RPIX inflation measure, they would now be over £14,000 per year.
This, combined with a recent drop in international student income, has led the Higher Education Policy Institute to issue warnings that there is a “real risk” that a university could go bankrupt in 2024.
Would ministers allow universities to generate more revenue by increasing tuition fees? That would not be well received by students.
Or are they signalling that the government will allow universities to recruit more international students who pay uncapped tuition fees – and risk being criticised by those who want a sharp reduction in net migration?
Prisons
Prisons in England and Wales had just 1,451 places available at the end of last week, meaning they are 98% full, according to Ministry of Justice data.
The government has decided that from September there will be temporary early release for some prisoners who have served only 40% of their sentence in order to relieve pressure.
But experts warn that this will only create a short-term respite for the system.
The most important policy choice for the government is whether to accelerate the prison building programme to meet demand for places – at considerable cost to the Treasury – or to seek to reduce the prison population through permanent sentencing reform, which some would probably describe as “soft on crime”.
Thames water
Thames Water’s latest report for the financial year ending March 2024 reveals that the company has debts of £15.2 billion, which it is struggling to repay. It only has enough cash to last until May 2025.
If Thames fails, it will likely be placed under a government “special administration” – a form of temporary nationalisation – to ensure that some 16 million homes in the south-east of England continue to have access to their water.
Should the government wait and hope that the situation improves and the company can raise the private funds it needs to continue operating? Or should it seize the opportunity of the special administration sooner?
The risk of waiting is that the final cost of the bailout to taxpayers could be higher. And the crisis could potentially spread to other financially fragile private water companies.
Additional reporting by Daniel Wainwright, Pilar Tomas and Phil Leake.
