The government seems set to continue its showdown with the unions. Despite the threats of Christmases ruined by transport walkouts and the risk of deadly disruptions to healthcare from strikes by nurses and ambulance drivers, ministers are standing firm behind the line of pay restraint. The scene is set for another winter of discontent.
The Tories’ political gamble is that the unions, not the government, will get the blame for this. They highlight the relatively good pay of some of the affected workers, the other benefits and security they enjoy, and the fact that private sector workers will probably be being squeezed just as much right now – if not more.
They daren’t admit, however, the real issue of public pay pressure: that stagnant growth is wearing away at all of our services.
Since the 2008 crisis, the country has failed to recover its productivity or growth rates. At the same time an ageing population, the Covid pandemic and inflation have driven up costs. Even simply maintaining services has meant spending a higher proportion of national income – averaged across the last decade, the NHS saw a real terms increase of 0.4 per cent per person per year, while services deteriorated, failing to match increased demand. Despite ten years of austerity the tax burden is the highest it has been since the 1940s.
Britain’s national fortunes have been on the slide since the financial crisis. Per capita income is now closer to Eastern Europe than to America. On current trends, the average Pole will be richer than the average Brit by the mid 2030s. Half the population already live in areas poorer than the worst of parts of east Germany.
The strikes are now the most visible aspect of the squeeze. Public sector pay can only go up if the money comes from elsewhere. Efficiency savings have proven a chimera. Rising interest rates make more borrowing from the markets a difficult answer. More taxation is a political choice, but one which has electoral and economic consequences the Tories are loath to embrace. The government is stuck.
Liz Truss’s solution to Britain’s problems was chaotic (to say the least), but she understood one thing clearly: if the country didn’t start getting richer quickly, more and more things would become unaffordable. You can’t maintain first-tier services with an ageing population on a second-tier economy. It is fighting against economic gravity.
In the 1980s the heavy industries in the north of England became uncompetitive as the rest of the world developed. Strong unions protected workers for as long as they could, but ultimately collapse came. Now the public sector faces a government not only unwilling to increase their pay, but unclear on where the money comes from. Margaret Thatcher staked her political life on being stronger than the unions and won. The winter will show whether Rishi Sunak can do the same.
But however these disputes are resolved, the fundamentals will stay the same. To keep investing in public services we either need a radical shake up of how money is raised from taxation, expanding the base or the rate much further, or a return to past growth rates. The unions will continue to clash with the government, but whoever wins, its hard to see where a sustainable answer comes from.