Why Liz Truss u-turned over public sector pay

2 August 2022

10:08 PM

2 August 2022

10:08 PM

That was quick. Less than 15 hours after pledging a robust reform of public sector pay, Liz Truss has performed a u-turn on plans to bring national pay bargaining to an end. It comes after criticism mounted that slashing pay for new frontline staff was not the most obvious way to handle an escalating cost-of-living crisis.

In a sense, it’s a crime of poor timing rather than poor policy. National pay bargaining has long been questioned as a fair way to compensate staff on the government payroll. In part it’s due to the reasons laid out by Truss: there are obvious differences in the cost-of-living throughout the country, which might justify a rethink (housing being a key factor). But there are far more sympathetic reasons too: areas lacking in specific staff could gain the ability to offer more pay, to recruit those skills and services for locals. Furthermore, more focus on performance-related pay would help retain and reward the top public sector performers while making efficiencies across the board.

But this is not the time to have that argument. Even during economic downturns, public sector pay can often be up for discussion because of the job security that comes with the roles (whereas private sector workers tend to be more at risk of losing their jobs). But in this extremely tight labour market, it’s hard to make the case that public sector workers have significantly more security. Furthermore, the average worker is looking at a below-inflation pay rise, with many starting to question how they’ll make good on their bills this winter. If one had to pick the most politically tricky moment to make this argument, this would be it.

It speaks to a bigger concern about Truss’s economic campaign. An overhaul of the public sector and the tax code is long-overdue. But ushering this in at the wrong time, even by a few months, could have unintended consequences – and make a lasting impression on the public that the reforms were inherently the problem. If Truss makes good on her pledge to cut £30 billion – £55 billion worth of tax overnight (depending on who you ask), it will use up the fiscal headroom that might have provided more support packages this autumn. The fear is that this necessary reduction of the tax burden is less likely to be met with praise, but rather serious disgruntlement from households who can’t meet their energy bill payments.

Perhaps this is dawning on the Truss campaign and helps explain the pay bargaining proposal in the first place. The announcement from Team Truss said the reforms were estimated to save almost £9 billion a year — which would cover a meaningful portion of what she has pledged in tax cuts. Team Truss still insists that the money can be borrowed — and she has plenty of economists now defending her deficit-financed tax cuts — but this could be an early hint that Truss is looking for cash down the back of the sofa, as costs this winter are bound to add up.

A Sunak ally gets in touch: ‘This wasn’t a mistake. Liz wanted this in 2018 as Chief Secretary to the Treasury. The lady is for turning.’ Indeed, Truss’s flirtation with national pay bargaining reform is nothing new and has been on her radar for years. Confirmation from Team Truss this afternoon that there ‘will be no proposal taken forward on regional pay boards for civil servants or public sector workers’ seems very much like a reaction to criticism rather than a change of heart. It’s a warning, too, of what can happen when the right ideas are proposed at the worst time.

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