U.K. Risks Recruitment Crisis If Pay Squeeze Not Eased, IFS Says

There is a strong case for relaxing the squeeze on pay for higher-skilled public-sector workers in the U.K., according to the Institute for Fiscal Studies.

Further restraint would take government pay to “historically low levels” relative to the private sector and risk damaging schools, hospitals and other public services by making it harder to recruit and retain high-quality staff, the London-based think tank said in a report published Wednesday.

Cracks in austerity began to appear this month when Prime Minister Theresa May announced that the 1 percent cap on public-sector pay increases is to be lifted for police and prison officers. The easing is expected to be extended to other government workers as ministers are forced to confront voter anger after seven years of budget cutting under the Conservatives.

The squeeze on pay packets has intensified as inflation accelerated in the wake of the Brexit vote in June 2016, with nurses and Bank of England employees among the groups to protest in recent weeks.

But with the government spending 181 billion pounds ($244 billion) employing more than 5 million people, easing pay restraint will be expensive, the IFS warned. It estimated that increasing wages in line with either inflation or private-sector earnings would cost 6 billion pounds by 2019–20.

“The Treasury could provide extra funds for this by raising taxes, cutting other spending or borrowing more,” said IFS Senior Research Economist Jonathan Cribb, who wrote the report. “Asking the National Health Service, for example, to fund higher pay increases from within existing budgets would be very challenging.”

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