Treasury finds £4bn behind sofa for NHS pay rise that introduces performance pay

There will be a new element of performance assessment before pay rises are awarded Credit: PA

The pay rise being announced for NHS staff, other than doctors, is a big moment.

Because it is being funded with more than a billion pounds a year of new money from the Treasury for the three years of the deal.

And it will award an average pay rise of 6.5% in total over the three years to nurses, midwives, orderlies and so on - which means that for the first time in donkey's years there is a reasonable chance their pay will keep pace with inflation.

The average annual pay rise will be a touch over 2%, still a fraction below the current 2.7% inflation rate - but inflation is falling, which means that by 2021 a typical health service employee may be a bit better off.

How come the Chancellor Philip Hammond is showing a bit more generosity to NHS staff?

Credit: PA

Well as he said on Peston on Sunday a fortnight ago, he is prepared to find new money for NHS staff if they agree to change their working practices and improve their productivity.

Health service unions have agreed to do this in two ways.

There will be a reform of “progression” pay rises, so there will be a new element of performance assessment before pay rises are awarded; simply growing older and staying in the job won’t guarantee more pay.

And there will be an attempt to reduce sickness and absenteeism.

What is striking is that the Treasury is promising the money without saying where precisely it will come from.

For 2018/19, some £800m will come from the reserve. But the rest will be sorted in future budgets (theoretically it could come from tax rises, rather than borrowing).

What is also striking is the decision that NHS workers are special: there is currently zero suggestion or prospect that the Chancellor and Treasury will find new money to fund inflation-matching pay rises for other public sector workers.

PS From what I gather, starting salaries for some categories of NHS workers will rise well above inflation - presumably to encourage recruitment.