‘Labour’s Budget must include long-term plan for pay restoration’

The 2025 Budget is a crucial test of the government’s ability to confront the cost of living crisis and rebuild confidence in Britain’s public services.

For too long, pay restraint and short-term fixes have undermined the very people the country depends on — teachers, nurses, carers, and civil servants.

This Budget must mark a turning point: a commitment to fair, sustainable pay and a reformed system of negotiation that restores trust and stability across the public sector.

At the recent Labour Party conference, both the Prime Minister and the Chancellor promised to raise living standards. Yet for millions of public service workers, those promises will ring hollow without a credible plan for pay restoration.

‘These problems were not inevitable’

Days before the conference, unions representing more than a million NHS staff announced their withdrawal from the pay review body process — a clear sign of how little confidence remains in a system that has failed to deliver fair outcomes.

Real pay in the public sector remains below pre-financial crisis levels. Between 2010 and 2019, nurses’ earnings fell by about seven percent in real terms, teachers’ by roughly nine percent, with similar declines across other professions.

Even after modest gains in 2024, pay is still well behind where it would have been had it kept pace with inflation. The result has been predictable: soaring vacancies, high turnover, and growing pressure on already overstretched services.

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These problems were not inevitable. They are the consequence of political choices — a decade of underfunding and pay restraint imposed by successive governments.

Labour’s above-inflation award in 2024 was a welcome break with that orthodoxy, but this year’s offer will still leave many workers worse off in real terms. If ministers are serious about rebuilding the public realm, they must move beyond one-off settlements and establish a lasting framework for fair pay.

That means reforming the pay review bodies, which cover education, health, the armed forces, the police and senior civil servants. Though formally independent, they are functionally tools of government, operating as a buffer between ministers and the workforce while leaving ultimate control in the Treasury’s hands.

Asking unions to engage with a system that lacks credibility wastes time and deepens mistrust.

‘Reform of public sector pay and industrial relations is not a peripheral issue’

Instead, the government should use the Budget to commit to a long-term plan for pay restoration — a phased return to at least 2008 real-terms levels, underpinned by transparent fiscal planning and accountability.

This would not only signal respect for the workforce but also recognise the link between fair pay, service quality and economic resilience.

Fears that such a move would stoke inflation are overstated. Research by the IPPR and others shows that moderate, real-terms pay increases would have limited macroeconomic effects, particularly if phased over several years and tied to improvements in productivity.

In parallel, ministers should begin replacing the current pay review system with new sectoral negotiating bodies that bring government and unions together for structured collective bargaining.

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The model proposed for social care in the Employment Rights Bill offers a useful starting point, as does the national local government committee. These bodies would provide a more transparent, cooperative mechanism for pay-setting and help rebuild trust after years of confrontation.

Reform of public sector pay and industrial relations is not a peripheral issue. It goes to the heart of how Britain values work and sustains its essential services. Fair wages and effective negotiation are not luxuries — they are preconditions for a stable, high-quality public realm.

The Budget offers Labour the chance to show it understands that truth.

By recognising the hard work of public servants, restoring their pay through a clear and credible plan, and giving their unions a genuine voice in shaping the future, the government can begin to repair both the fabric of the public sector and the faith of those who keep it running.

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