When Rishi Sunak first saw the demand from junior doctors for a 35 per cent pay rise, he thought it was a typo. Now Keir Starmer must be rubbing his eyes at the scale of spending decisions ahead of him.
The Conservatives conducted a 20-month row with junior doctors over whether a pay restoration deal to match equivalent salaries in 2008 was a reasonable demand, leading to a series of strikes. The Prime Minister is now hinting at a willingness to accept above-inflation pay demands in other parts of the public sector. As formal negotiations begin on Tuesday, is an end in sight for the fight with junior doctors?
“There’s a cost that’s measured in the pounds and pence lost to the economy through industrial action,” Starmer said on Monday when asked about public sector pay. He knows full well it’s not just an economic cost, it’s a political one too.
Labour recognises it’s on a re-election timeline; some of its new MPs were already out and about door-knocking the weekend after polling day. With results from structural reforms – such as building more houses – likely to take four to five years to show up, the Government needs to make an impression quickly elsewhere.
Starmer can take his pick from the problems in his red box. Local councils are in crisis, universities complain of underfunding, prisons are bursting at the seams, Thames Water is in special measures, and public pay is not matching the private sector. While expensive, Starmer may view settling demands from junior doctors as well worth the price to jump-start a political success story.
A quick delivery on a manifesto pledge to create 40,000 new weekly hospital appointments to bring down waiting lists would be a necessary win for the PM. About 1.5 million appointments have been postponed since the current wave of industrial action began in the NHS in England in December 2022.
On Sunday, Chancellor Rachel Reeves hinted she is prepared to grant above-inflation pay increases to teachers and NHS staff (not including junior doctors) after independent pay review bodies recommended raises of 5.5 per cent for 1.8 million workers in those professions.
Labour had only budgeted for a three per cent hike, so if the 5.5 per cent rise was extended throughout the public sector, the Government would need to find an extra £10bn. “It can only come from higher borrowing than they’re planning, higher taxes than they’re planning, or cuts in spending elsewhere,” says Paul Johnson, director of the Institute for Fiscal Studies.
Reeves’s task is made all the harder by figures released last week which shows the budget deficit in June was £14.5bn – more than the £11.6bn forecast by the Office for Budget Responsibility, while national debt was at 99.5 per cent of GDP. Shadow Chief Secretary to the Treasury Laura Trott argues Reeves should have been more honest about potential tax rises during the election campaign. The Tories now say tax hikes are inevitable.
By way of context, Jeremy Hunt had a fiscal headroom of just £9bn in March’s Budget — a wafer-thin margin by historic standards. Reeves is currently working out where she stands ahead of a Budget in the autumn. She has already been handed a shopping list of demands from Labour backbenchers including scrapping the two-child benefit cap at an annual cost of £3bn.
As junior doctors arrive to formally negotiate with the Government, no one is seriously considering a 35 per cent settlement, which the British Medical Association estimate would cost £1bn, and the Government says would cost nearer £2bn. Nonetheless, Health Secretary Wes Streeting has said there is a deal to be done.
Junior doctors should be encouraged by Reeves’s more emollient tone to the public sector. The Government should be pleased the junior doctors say their demands don’t have to be settled all at once. Clearly there is a window for a settlement ahead of the BMA meeting mid-August.
Just a fortnight into office, Reeves is already making calculations. Is a settlement, however expensive, worth the political problem it solves, or does it just create another political headache for Budget time later in the year?
Reeves the economist recognises the drag that waiting lists have on the economy. That Reeves is prioritising pay rises above benefits, unlike some others in her party, tells us a lot about her politics. She and Starmer will put working people first, judging this will be more popular with the “small-c” conservatives they’ve borrowed votes from.