London Daily

Focus on the big picture.
Tuesday, Sep 29, 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
Transport for Wales and Network Rail Complete Electrification of South Wales Metro
Defra Expands Incentives for Sustainable Farming and Biodiversity in England
Northern Ireland Executive Approves Funding Package to Resolve Public Sector Pay Disputes
Universities UK Warns of Financial Insolvency Risks for Higher Education Institutions
UK Prisons Activate Emergency Protocols to Manage Capacity Pressures
UK Government Establishes New Safety Standards for Frontier AI Models
Home Office Tightens Skilled Worker Visa Requirements and Dependent Rules
Ministry of Defence Restructures Royal Navy Frigate Procurement to Prevent Overruns
UK Government Mandates New Housing Targets to Address National Shortage
UK and Scottish Governments Reach Agreement on North Sea Energy Transition
NHS Launches Digital Overhaul to Reduce Surgical Backlogs in England
Bank of England Holds Interest Rates as Service Sector Inflation Persists
UK Chancellor Announces Fiscal Consolidation Measures to Stabilize National Debt
RNLI Chief Executive Condemns Misinformation and Abuse Targeting Volunteer Crews
Metropolitan Police Charge Swindon Man with Assisting Foreign Intelligence Services
British Intelligence Report Warns Environmental Collapse Threatens Global Defense Infrastructure
Conservative Party Rejects New Taxes to Fund UK Social Care Reforms
Labour Government Signals Intent to Ease Residency Restrictions for Foreign Care Workers
Prime Minister Andy Burnham and Norwegian Prime Minister Jonas Støre Meet to Strengthen North Atlantic Defense
UK Government Plans to Revive Equity Loan Scheme to Assist First-Time Home Buyers
Prime Minister Andy Burnham Pledges Radical Reform for UK Utilities and Social Care
UK Treasury Prepares Difficult Autumn Budget Amid High Debt and Energy Volatility
Civil Aviation Authority Launches Review of Air Traffic Systems Following Digital Failure
X Reports First Increase in UK Revenues Following Advertiser Boycott
Shetland Islands Council Approves £400 Million Inter-Island Tunnel Project
Foreign Secretary Ed Miliband Warns Iran Against Hostile Activities on British Soil
UK Ministers Concede Chagos Islands Sovereignty Agreement Terminated After US Opposition
More in Common Poll Projects Hung Parliament with Labour Leading and Reform UK Gains
Prime Minister Andy Burnham Defends Economic Strategy as Public Finances Face Headwinds
Tony Blair Urges Government to Set Long-Term Goal of Rejoining the European Union
Prime Minister Andy Burnham Pledges Universal Free Social Care Funded Through General Taxation
UK Diesel and Petrol Prices Surge Near All-Time Highs Amid Middle East Energy Volatility
Analysis of Reform UK conference highlights deep political divisions over welfare and immigration
Bangladesh garment exports to the United Kingdom reach $915 million in early fiscal year
Royal Navy begins sea trials for new HMS Agamemnon hunter-killer submarine
New report suggests UK data centre expansion will create far fewer jobs than predicted
Major weekend closures announced for London Underground Piccadilly and Central lines
NHS leaders call for emergency winter funding to combat staffing shortages and rising illness
Far-right activist Daniel Thomas charged following alleged slashing of migrant dinghy
Home Secretary orders urgent review of border security following rise in small boat crossings
Prime Minister Andy Burnham to address Labour Party conference amid calls for long-term infrastructure plan
UK Treasury and Bank of England warn of rising inflation risks amid Middle East tensions
Royal Navy Diving Squadron Honoured for Global Bomb Disposal Efforts
UK State Pension Set to Approach £13,000 Per Year Under Triple-Lock
Rolls-Royce Wins Multi-Million-Pound Engine Contract with Philippine Airlines
TfL Questions Future of Heathrow Express Amid Proposed £33 Billion Expansion
Ed Miliband Warns Iran Against Hostile Operations on British Soil
S&P Global Manufacturing Index Signals Stabilization Amid Rising Fuel Costs
Prime Minister Andy Burnham Launches National Centre for Information Defence
UK Food and Drink Trade Deficit Surges to £21.1 Billion
×