Labour is only a couple months into its term, but if pushed to name an achievement so far, I’d say this: the politically unsayable is starting to be said.
“Reform or die” were Keir Starmer’s words for the health service – nothing close to anything muttered by successive Tory Prime Ministers during their 15 years in power.
Meanwhile slashing the winter fuel allowances for pensioners not on pension credit seems to have opened up a much wider discussion about the need for pension overhaul. Cue the Institute for Fiscal Studies, which released a chapter of its Green Budget this week, looking at the pressures on public sector pay.
The IFS, to its great credit, is no stranger to saying the difficult bits out loud. During the general election, it was this think tank that kept noting how evasive all political parties were acting towards the dire state of the public finances: that the tax cuts and spending promises being made in some variation by all parties were not being accounted for and were not “costed” as promised.
This week’s report is more grim – but important – reading. Yet again we find an example of the UK taxing and spending at record amounts, with very little to show for the results.
Public sector pay – including National Insurance contributions – accounts for a staggering 22pc of total government spending, the IFS notes. Yet many of the state’s workers would struggle to believe it, as public sector pay sits, in real terms, just 1pc higher than it was in 2019 and is still lower than it was in 2010.
Productivity has collapsed in the public sector since the pandemic; recruitment and retention are proving particularly tricky. Perhaps most worryingly, first the Tories, and now Labour, have signed up to an NHS “Long Term Workforce Plan” which is going to require tens of billions of pounds (unaccounted for) which will funnel into a clearly broken system.
The ever-growing expense of public sector pay – combined with the deep frustration of public sector workers – is not a new or unexamined issue. But it has long been a problem that has been tackled in two wholly unappealing ways: stand-offs between ministers and unions and paydays that fail to go hand-in-hand with reform.
The Tories showed the pitfalls of the first, failing to weather the many political storms – and strikes – which saw the NHS waiting list move in the wrong direction.
Labour’s recent actions have highlighted the risks of paydays that aren’t tied to reform: junior doctor campaign groups are already talking about how the decision to accept a 22pc pay offer will give workers the time and resources to stage more strikes in the future.
Neither pathway has a great record of success – and neither is affordable. But these aren’t the only options.
The on-and-off strikes carried out by health staff over the past nearly two years have highlighted the curious pay package structures that have been put in place.
While take home pay for junior doctors and nurses has often seemed worryingly low, the bigger picture shows where much of their compensation comes from: pension contributions made by their employer worth 20pc of their salary, about four times what workers in the private sector get. This means a big payout later, at the expense of having too little income in the meantime.
It’s a point that was driven home when former Chancellor Jeremy Hunt lifted the lifetime allowance on pension contributions specifically to try to keep doctors working longer.
But that’s not the only example of lofty – and distorted – pension offers. A mere 680,000 people in the private sector are currently contributing to and accruing benefits from the far more generous and secure defined benefit pension schemes, compared to the 7.2m workers paying into a public service defined benefit scheme.
This is obviously unsustainable. Britain hit an ugly milestone last week when debt as a percentage of GDP surpassed 100pc – a stark reminder that the promises that have been made, especially in relation to pensions and healthcare, are not currently within the UK’s means to deliver.
But change felt impossible mere months ago, not least because the Tories were out of political capital and could never make serious and necessary changes to an area like pensions.
The mood has shifted. Indeed, the IFS suggest this week there is a “good case” for the Chancellor to consider making this swap: a slightly less generous pension to fund public sector pay rises, which have just cost Rachel Reeves nearly £10bn in her first big spending announcement of this Parliament.
And it shouldn’t stop there. The winter fuel allowance row has made clear just how overdue Britain is for a pension shake-up.
If Labour made a mistake, it was not to reduce payments to pensioners, but rather to use up a lot of its political capital to cut a mere £1.5bn worth of expenditure. It would have been better to set its sights on the far more unsustainable state pension triple lock. The last triple lock uplift alone is estimated to cost £11bn.
In this sense, Labour’s first big achievement may become a regret: having called time on one faulty pension policy – and allowed room for talk of pension reform – it may now need to grapple with the very politically tricky task of delivering something sustainable.
Kate Andrews is Economics Editor at The Spectator
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