IFS response to NHS pay offer

Ben Zaranko, Senior Research Economist at the IFS, said:

“This pay deal would, on the basis of the latest set of official government forecasts, see NHS pay grow slightly faster than CPI inflation (4.1%) and private sector pay (4.5%) in the coming financial year.  That would still leave consolidated pay up to 5% lower in the longer run than it was in 2021–22.

Fiscally speaking, the one-off bonus or backdated element is less significant and less of a challenge. We have to presume that funding for this will come from the Treasury – perhaps out of the £14 billion ‘reserve’ built into plans for next year.

The permanent, consolidated 5% pay award raises bigger questions. There was no additional funding provided in the Budget for this purpose. Just over three weeks ago, the Department of Health and Social Care was claiming that pay awards of more than 3.5% were unaffordable. A 5% pay offer rather than 3.5% would add around £1.5 billion to the NHS pay bill.

If no extra cash is forthcoming from the Treasury, it may be that for the second year in a row, the health service is asked to somehow absorb these additional costs – whether through reductions in headcount, or lower spending on things like digital transformation. There must be a risk that the NHS is asked to make heroic efficiency savings to absorb these costs, struggles to do so, and instead has to be bailed out in 6 months or a year’s time. That would hardly lend itself to sensible financial planning.

From what we know at the moment, it is unclear whether the Treasury will eventually provide the funding required to cover the cost of this deal. If it did, that would be a material alteration to the spending plans contained in Wednesday’s Budget before the ink is dry.”