Teachers, NHS workers, armed forces and prison workers are set to get a pay rise, the independent bodies who suggested the pay rise have estimated a cost of £5 billion; 2 billion this year and 3 billion next year.
For teachers, this wage increase has been the most significant in 15 years.
But where is the money coming from?
The Treasury and Prime Minister suggested the money would come from the existing budget, which could mean cuts to the existing services.
Teachers are concerned it will come from the education budget because this is already stretched, Gillian Keegan stated they went through the education budget with a fine-tooth comb to cut out spending on projects which will not be delivered as quickly, or demand will not be as forecasted. As things are forecasted there is often an underspend within the education budget which goes back to the treasury, the treasury has allowed for the education department to keep this money.
When questioned on what services would be cut within education to fund the pay rise, Gillian Keegan said there are lots of different schemes within the education department which will be slowed down or stopped for the next coming years but things such as special educational needs, building conditions, child care offer are not being cut from the budget.
The prime minister confirmed funding would not come from increasing taxes but other avenues such as increasing charges immigrants must pay when applying for visas by 15% and increasing immigrant healthcare surcharge by 66% from £624 to £1035, which is paid by immigrants to use the NHS. However, this feels like an increase in tax for immigrants.
Tax the rich?
Why has it not been considered to tax the richest families in the UK properly? Before writing this article, I came across an Instagram post by ‘littlemisssolana’ which stated if the rich list created by the Times were taxed properly it would raise 20 billion a year. £15 billion over the required amount to increase key workers’ pay.
Tax Justice suggested different tax policies which could be used to tax the rich fairly in the UK. These include a 2% tax on all assets worth above £10 million, which would raise £22 billion. Equalise capital gains with income tax because as academics from Oxford University argued it is unfair that working people pay more tax on their wages than someone living off their investments, which could raise £15.2 billion a year. Apply National Insurance to investment income, which could raise £8.6 billion a year.
These are all solutions to not only help fund the pay rises but would also address the rising inequality within the UK.
Ministers talk of the dangers of how increasing wages could increase inflation
Prime Minister Rishi Sunak warned of a ‘wage-price spiral’ which is where inflation rises due to higher wages. However, economists explicitly disagree with this statement, especially as consumers do not pay for public services directly so it cannot affect inflation statistics.
The below graph comes from the Employment and Employee Types data collected by the Office of National Statistics. This graph shows us up until 2011 pay rises within public sectors were above inflation. This does not address the ‘wage-price spiral’ however, Paul Whiteley noted the correlation in the below graph between public sector wage increases and inflation was negligible and does not relate.
 Gillian Keegan, Good Morning Britain.
 TaxJustice.UK, ‘Six wealth tax policies that could raise £50 billion’ 15 March 2023.
When commenting on this issue Henry Parkes, a senior economist argued inflation was being driven by soaring energy prices and covid, the government should be putting profit restraints on big companies not forcing the country into recession by reducing household incomes. s
Further, I think it is important to note when we are talking about pay rises here, they are not technically a pay rise because of inflation. February 2022, private sector jobs pay increased by 5.9%, inflation increased by 6.2% and public sector pay increased by 1.7%. Meaning pay rises were being eroded by increases in prices.
 Big Issue, ‘Will giving workers a pay rise really make inflation worse? We asked expert economist’ Greg Barradale, 29 June 2023.
 LSE, ‘Does public sector pay drive inflation?’, Paul Whiteley, February 21, 2023.
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