Chancellor says he 'understands the anger' but public sector pay restraint needed to tame inflation

ITV News Business and Economics Editor Joel Hills speaks to Chancellor Jeremy Hunt as he insists the government is right to pursue a policy of pay restraint in the public sector.

Strike action can cause significant upheaval but, so far this year, it hasn’t damaged economic growth.

People are good at adapting to adversity, the pandemic taught us that. 

Can’t get a train? Nowadays, we can often work from home. Activity lost on one day has, thus far, been made up on another.

But the UK faces a winter of intensifying industrial action which will test the public’s adaptability, its patience, and could damage growth.

This morning, as ambulance workers in Northern Ireland went out on strike, the chancellor insisted the government is right to pursue a policy of pay restraint in the public sector.

“I do understand the anger people [in the public sector] feel,” Jeremy Hunt told ITV News.

“They are working incredibly hard, they do a brilliant job for us, I think we all saw that in the pandemic, but the government too has a sincerely held concern not to do anything that locks in the high inflation that, ultimately, is the root cause of their anger”.

'While today’s figures show some growth, I want to be honest that there is a tough road ahead'

The challenge the government faces is that the five and a half million people who work in the public sector workers have been enduring pay restraint for years. 

The Institute for Fiscal Studies (IFS) calculates that public sector pay fell by 4% in real terms between January 2010 and April 2022 (before inflation really began to bite). Over the same period, private sector pay grew by 4%.

So far this year, in the three months to September average wage growth in the public sector stood at 2.4%. In the private sector it was 6.8%.

Ben Zarenko at the IFS isn’t convinced that higher pay in the public sector would stoke inflation in the way the chancellor suggests.

“It is difficult to see how an increase in public sector wages could directly contribute to a wage-price spiral,” he said.

“Most public sector outputs don’t have a price attached to them. If you increase the pay of midwives, consumer price inflation doesn’t move”.

Of course, it’s the Bank of England’s job to target inflation. The government shouldn’t be making the Bank’s job harder but it has to set public sector pay at a level that attracts and retains the doctors, nurses, teachers and police officers that we need.

When public sector workers vote to strike in large numbers and hospitals and schools have such obvious recruitment problems, it’s fair to ask if the government has got its strategy on pay right.

“The right solution to these very difficult disputes is to do what the government is doing,” insists the chancellor.

Jeremey Hunt was speaking on the day that we learned that the UK economy rebounded by more than expected in October.  

As Britain records a slight growth in GDP, ITV News Economics Editor Joel Hills asks the chancellor if a recession can be avoided

GDP grew by 0.5% last month after falling by 0.6% in September, according to the Office for National Statistics.

The extra bank holiday in September for the state funeral of the Queen explains much of the volatility between months.

The big picture isn’t pretty. Inflation is crushing disposable income, higher interest rates are intensifying the squeeze on households and businesses.

Even the chancellor concedes we’re probably in the early stages of a downturn.

“This is a very challenging economic situation here and across the world, and it will get worse before it gets better,” said Jeremy Hunt on Monday.

“I think the likelihood is we are going to go into recession”.

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