Teachers and NHS staff will get a 5.5% pay rise, Rachel Reeves has confirmed, costing the Treasury around £3.5bn.
The Chancellor announced above-inflation pay rises for millions of public sector workers in a statement released on Monday afternoon.
Ms Reeves said she would fully accept the recommendations of independent pay review bodies for teachers and NHS workers, saying it was the “right decision for people who work and, importantly, for people who use our public services”.
The news comes after I It has been revealed that Labour’s manifesto budget could be cut by a further £1.5bn if the government agrees to demands to pay teachers a 5.5% rise above inflation.
The National Education Union (NEU) has already warned it could vote for further strike action in the coming months if Labour refuses to offer an “inflation-increased” pay bonus. I understand.
Independent pay review bodies representing 514,000 teachers and 1.36 million NHS workers had both recommended pay rises of around 5.5%, which economists say would cost an extra £3.5bn in total, putting Ms Reeves under pressure to set out tax rises, spending cuts or increased borrowing in the autumn budget.
Education Secretary Bridget Phillipson announced on Monday that almost £1.2 billion in extra funding would be given to schools in the 2024/25 financial year to cover the costs of awarding the pay.
Luke Sibieta, an education analyst at the Institute for Fiscal Studies (IFS), had estimated that the 5.5% increase in teachers’ salaries would cost the Treasury between £1.05bn and £1.35bn, depending on what he assumed schools could afford with existing budgets.
He said I:”We know that every 1% increase in teachers’ pay costs around £300m. So, assuming schools can already afford a 2% increase, that would cost £1.05bn.
“Schools probably can’t afford 2%. They’re more likely to be able to afford 1%, in which case it would cost about £1.35 billion.
“It depends on what the Treasury thinks schools can already afford. Naturally, they’re probably going to try to assume they can afford as much as possible, to sort of keep costs down.”
Max Warner, an IFS economist specialising in the NHS, said the cost to the Treasury of a 5.5% pay rise for NHS Agenda for Change staff, which includes nurses, would cost around £2.3bn extra.
He said I“The NHS expected a 2% pay rise in its planning. Therefore, a 5.5% pay rise for NHS Agenda for Change staff would cost hospitals and the DHSC an additional £2.3 billion.”
This means the 5.5% increase in public sector pay will cost the Treasury £3.5bn, economists say.
In a written ministerial statement, Ms Phillipson said: “I hope that this year’s salary awards, funding and accompanying announcements will begin to build on that positive and productive partnership, resetting the relationship between government and the teaching profession.”
She added: “However, we must not take for granted the considerable financial challenges this government has faced in finding this new funding.
“As the Chancellor said, the budgetary environment has made this process difficult, but this decision will help schools facing recruitment and retention challenges.”
Ms Reeves outlined the spending legacy left by the previous government, accusing the Conservatives of “covering up the true state of the public finances”.
She told the House of Commons that the government had inherited a £22bn budget overrun from the previous Conservative administration.
She also announced billions of pounds of budget cuts, after ordering the Treasury to conduct an audit of the UK’s public finances.
She then outlined Labor’s “immediate measures” to address the situation, including cancelling and delaying major infrastructure projects, before turning to the government’s longer-term plans to repair “the foundations of our economy”.
Education unions have welcomed the 5.5% increase in teachers’ salaries.
Daniel Kebede, general secretary of the National Education Union, said: “A 5.5% pay rise is a necessary first step to reversing the real-terms pay cuts inflicted on teachers and school leaders during the Tories’ premiership.
“It is clear that there is still some way to go to restore what teachers and school leaders have lost since 2010 and we hope that this issue will be resolved in the upcoming pay negotiations. However, this announcement is a strong signal to the profession about a new direction for education.
“The £1.2 billion investment to fund this pay bonus will be welcome news for school leaders juggling stretched budgets resulting from years of cuts.”
The NEU executive committee will meet next week to consider the offer and make a recommendation for members to vote on in September.
Pepe Di’Iasio, general secretary of the Association of School and College Leaders (ASCL), said: “We are very pleased that the independent pay review body has recognised that teacher pay needs to be significantly improved to support recruitment and retention, and that the government has fully accepted its recommendation.
“This will go some way to addressing the wage erosion that has taken place over the last decade, and is in stark contrast to the below-inflation bonuses that teachers have had to get used to in recent years.”
Mr Di’Iasio welcomed the additional £1.2bn of funding given to schools to enable them to pay the premium and said the union would “look carefully at the details to ensure the premium is truly affordable for all schools”.
Unions also welcomed the announcement that schools will no longer be required to use performance-based pay and increased flexibility around non-contact time.
