London Daily

Focus on the big picture.
Monday, Oct 05, 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
BT Accused of Pressuring Vulnerable Customers During Digital Landline Shift
British Carmakers Warn of Growing Pressure From EU-China Tariff Dispute
Green Party of England and Wales Adopts Motion Defining Zionism as Racism
Medical Charity Threatens NHS Legal Action Over Two-Year Autism and ADHD Assessment Waits
British Transport Police Report Record Rise in Violence on Railways
Glasgow Council Workers Face Pay Cuts Under Fire-and-Rehire Plan
British Medical Groups Press Prime Minister Andy Burnham to Cancel £330 Million Palantir NHS Contract
UK Faces Record Bluetongue Outbreak Across Livestock Farms
UK Schools Report Thousands of Child-on-Child Sexual Offences
High Court Overturns Ban Blocking Gaza Families From Reuniting With Relatives in UK
G7 Authorizes Emergency Fuel Release as UK Diesel Prices Hit £2 a Litre
France and Italy Draw 1-1 in Nations League Match
Pope Leo XIV and Prince Albert II of Monaco Meet in Metz
SNCF Expands Low-Cost Ouigo High-Speed Service Between Lyon and Bordeaux
Paris Expands Dedicated Cargo Bike Routes for Urban Deliveries
French Film Industry Pushes for Tighter Streaming Investment Rules
Marseille Court Hands Down Prison Terms in Public Procurement Corruption Case
LVMH and Kering Rely on US Demand as Chinese Luxury Spending Slows
Toulouse Aerospace Sector Launches €80 Million Modernization Fund
Javier Milei Courts French Investment in LNG and Lithium
Mistral AI Launches Sovereign Model for European Public Services
French Competition Authority Fines Retailers €40 Million Over Misleading Promotions
France Records Exceptional Electricity Exports as Nuclear Output Recovers
Dassault Aviation Expands Rafale Assembly Capacity at Mérignac
Sanofi Invests €1 Billion in New Biologics Production Hub Near Lyon
France Protests Germany’s Extension of Border Controls Into 2027
French Public-Sector and Transport Unions Threaten National Strike
France Deploys Riot Police After Violence in Lyon Suburbs
French Anti-Terrorism Prosecutors Investigate Radicalized Flydubai Co-Pilot
France’s Defense Budget Surpasses NATO’s 2% of GDP Target
French Government Faces No-Confidence Threat Over Budget
France and G7 Release 100 Million Barrels From Strategic Oil Reserves
France Convenes Emergency Defense Council Over Threats to Commercial Shipping
France and Germany Coordinate Military Response After Russian Strikes on Kyiv Infrastructure
UK Police Release Six Iranian Nationals on Bail After RAF Fairford Security Alert
UK Business Confidence Falls as Energy Costs and Tax Uncertainty Rise
Cornwall Insight Warns UK Energy Bills Could Rise 16% in January
UK Introduces Zero VAT on Household Electricity Bills
UK 30-Year Gilt Yield Hits 6% as Bond Market Pressures Intensify
UK Introduces Stricter Subcontractor Checks and Expanded Trade Union Access
Green Party Proposes Three-Year Emergency Freeze on Private Rent Increases
UK Treasury Committee Seeks Tax Clarification Over Manchester City Investigation
Royal Marines Deploy to Faroe Islands for Northern European Security Exercise
UK Business Confidence Weakens as High Costs Delay Investment
UK GDP Growth Revised Up to 0.5% in Second Quarter
Bank of England Warns of Financial Stability Risks From Autonomous AI
UK Expands Early Prisoner Release Scheme to Ease Overcrowding
UK Records Worst Bluetongue Outbreak on Record Across Livestock Farms
UK Government Faces Shrinking Fiscal Headroom Ahead of October 28 Budget
UK 30-Year Gilt Yield Reaches 6% as Energy Shock Drives Borrowing Costs Higher
×