London Daily

Focus on the big picture.
Friday, Oct 23, 2026

Rail strikes: Give public sector workers a pay rise or cut everyone's taxes by 2%? Chancellor left with tough set of choices

Rail strikes: Give public sector workers a pay rise or cut everyone's taxes by 2%? Chancellor left with tough set of choices

Public sector workers have seen their pay fall in real terms by 4.3% since 2010, but giving them a rise in line with inflation would amount to a huge sum, says Sky's Ed Conway.

Imagine, if you can, you are in the chancellor's shoes.

Your instincts are to cut taxes and reduce public spending yet pretty much every decision you've taken in office has involved doing precisely the opposite.

Worse: in recent months, even when you have forked out serious sums to support workers, much of that money seems to have gone unnoticed.

This year alone you have unveiled two genuinely generous packages which will cushion much of the blow from higher energy bills and the rising cost of living, yet the prime minister and many of your cabinet colleagues seem to think you need to do more.


And things are about to get even stickier, for even after the rail strikes this week, the summer's trickiest decision is looming: how to navigate the demands from millions of public sector workers for significant pay rises.

They have a point - have seen their pay fall in real terms by 4.3% since 2010 (compared with a 4.3% rise for their private sector counterparts).

Moreover, while it could be argued for most of the past few decades that public sector workers have considerably higher levels of pay (levels - not just annual changes in pay), these days that's not so clear.

While headline pay per hour for public sector workers is still about 7% higher than for private sector workers, when you adjust for differences in working patterns and skill levels (it turns out that on average skill levels in the public sector are higher), actually public sector workers are now earning slightly less than their private sector counterparts - for the first time in at least a generation.


Now, there are some important caveats - notably the fact that public sector workers tend to get much more generous pensions than their private sector counterparts, something the Office for National Statistics reckons is equivalent to a 7% premium on their pay. Even so, it's clear that many state workers have a strong case for pay rises.

And given inflation is so high right now, anything below the predicted CPI level of around 9% this year will mean an effective real terms pay cut, raising the question: how much would it cost to give public sector workers a pay rise in line with that CPI rise?

To find out, we need to take a look at the public finances. In 2021/22 the government spent a grand total of just over a trillion pounds, of which around £230bn was spent on public sector pay. Now, as things stand the Spending Review envisaged pay going up more or less in line with inflation - but at the time that was forecast to be around 2-3%. That would cost around £7bn. So let's imagine that's our starting point.


Now let's calculate what it would cost to increase that £230bn in line with 9% inflation: a back-of-envelope calculation says around £21bn. Subtract the £7bn the government was already assuming it would have to spend and you're left with an additional total of £14bn. That's how much, give or take, would be needed to keep public sector workers' pay rising in line with inflation - a real terms pay freeze.

That turns out to be an awful lot of money. For £14bn you could cut all rates of income tax by 2% - precisely the kind of enormous and eye-catching tax cut the chancellor has been dreaming of for all this time.

That £14bn sum is about the same as the amount the government was trying to raise via the controversial Health and Social Care Levy. You get the idea: this is big stuff.

So the chancellor faces a tough set of decisions. And this is before one considers the wider economic questions. Might raising public sector pay make a wage-inflation spiral even more likely? Might it push the UK towards stagflation?

On the flip side, doing nothing will mean more people facing more financial difficulty and pressure in the face of generational leaps in the cost of living.

Newsletter

Related Articles

0:00
0:00
Close
Government Injects One Hundred and Forty Million Pounds to Expand Urgent Care Ahead of Winter Crisis
Department of Health Warns Further Pay Rises Will Derail National Health Service Waiting List Targets
Major Environmental Emergency Declared in South Wales Following Aerospace Kerosene Spill
Tank Barrel Production Returns to Britain as Defence Contractors Accelerate Domestic Rearmament
Government Approves Controversial Jackdaw Gasfield Development in the North Sea
National Health Service Maternity Safety Review Condemned Over Flawed Artificial Intelligence Integration
Dozens of United Kingdom Government Services Taken Offline Amid Critical Software Vulnerability
Barclays Announces Five Thousand Job Cuts Citing Artificial Intelligence Productivity Gains
Treasury Relaxes Post-Financial Crisis Accountability Rules for City of London Executives
United Kingdom Government Issues Unprecedented Guidance Urging Citizens to Stockpile Essential Supplies
United Kingdom Consumer Inflation Accelerates to Eleven-Month High Driven by Transport Costs
United Kingdom Public Sector Net Debt Breaches Three Trillion Pounds Ahead of Autumn Budget
Department for Science, Innovation and Technology Commits Fifty Million Pounds to Establish Regional Artificial Intelligence Innovation Clusters
Ofgem Directs Major Energy Suppliers to Expand Vulnerable Household Support Funds Ahead of Winter Heating Season
Home Office and National Police Chiefs Council Unveil New Intelligence-Led Strategy to Tackle Organised Immigration Crime Networks
First Minister John Swinney Secures Scottish Parliament Approval for Comprehensive Climate and Green Energy Infrastructure Strategy
National Health Service England and Trades Union Congress Finalize Agreement on Emergency Winter Staffing and Pay Frameworks
HM Treasury and Department for Business and Trade Announce Multi-Billion-Pound Sovereign Investment Pact to Spur Regional Advanced Manufacturing
Bank of England Governor Andrew Bailey Signals Potential for Faster Interest Rate Cuts as Domestic Inflation Pressures Ease Below Forecasts
Parliamentary Inquiry Highlights Urgent Need to Address Housing Shortage as Scottish Completions Hit Eleven-Year Low
United Kingdom and Singapore Sign Comprehensive Financial Agreement to Deepen Digital and Sustainable Market Ties
Greggs Announces Plan to Close Four Manufacturing Facilities and Cut Seven Hundred and Forty Jobs
International Monetary Fund Raises United Kingdom Economic Growth Forecast While Warning of Inflationary Pressures
Energy Security and Net Zero Committee Urges Government to Shift Policy Costs Onto Gas to Lower Household Bills
Housebuilding Across Scotland Plummets to Eleven-Year Low Despite Government Pledges to Tackle National Housing Emergency
Greggs Announces Factory Closures Across Northern England and Scotland Affecting Seven Hundred Forty Jobs
United Kingdom and Singapore Conclude Eleventh Financial Dialogue in Singapore to Deepen Cooperation on Digital Finance and Capital Markets
Energy Security and Net Zero Committee Urges Government to Shift Policy Costs to Gas Bills and Tap Windfall Profits to Lower Consumer Prices
British Broadcasting Corporation Announces Major Cost-Cutting Overhaul to Close Linear Broadcast Services for Television Channels BBC Three and BBC Scotland Alongside Digital Radio Station BBC Radio Four Extra
London Capital Markets Face Renewed Scrutiny After High-Profile Offerings Underperform Post-Listing
Green Party Wins Historic First Westminster Parliamentary By-Election in Gorton and Denton
Environment Secretary Emma Reynolds Unveils Sweeping Regulatory Overhaul for English Water Industry
United Kingdom Health Security Agency Confirms Thirty-Four Cases in Kent Meningitis Outbreak
Ministry of Defence Prepares Heat Pump Subsidy Cuts to Fund Urgent Military Modernization
British and European Union Officials Schedule Long-Awaited Bilateral Leaders Summit for November Twentieth
Bank of England Governor Andrew Bailey Urges Strict Fiscal Credibility to Protect British Bond Markets
United Kingdom Inflation Rises to Three Point One Percent Driven by Escalating Fuel Costs
Profit Warnings Among London-Listed Companies Reach Two-Year High Amid Global Energy Shocks
Chancellor John Healey Signals Targeted Tax Changes on Banks and London Corporate Offices Ahead of Budget
British Government Reallocates Twenty-Five Per Cent of International Climate Finance to Global Biodiversity Projects
Initial British Carbon Border Taxes Set to Undercut Parallel European Union Tariffs on Industrial Imports
Whitehall Prepares National Zero-Interest Loan Initiative to Accelerate Domestic Heat Pump and Solar Adoption
European Union Offers British Automakers Access to Hybrid Vehicle Trade Protections Subject to Strict Regulatory Alignment
British Probation Officers Threaten Widespread Industrial Action After Rejecting Five Per Cent Government Pay Offer
Microsoft Abandons Major British Artificial Intelligence Data Centre Citing Severe National Grid Power Constraints
United Kingdom Inflation Accelerates to Three Point Four Per Cent Ahead of Chancellor John Healey's Inaugural Autumn Budget
Surging Cloned Number Plates Severely Complicate Traffic Enforcement and Police Investigations
Mounting Opposition Challenges Planned Rollout of Autonomous Taxis Across London
Influential Think Tank Urges Rejoining European Union to Navigate Geopolitical Crises
Government Review Recommends Slashing Benefits to Fund Youth Employment Initiatives
×