May's Conservatives Signal Beginning of End to U.K. Austerity

  • Public sector pay cap since 2013 is under ‘active discussion’
  • Election fiasco have prompted May’s Tories to rethink policies

Embark CIO Toogood Sees Attempt to Cherry Pick Brexit

The U.K. government led by the Conservatives sent a signal that austerity politics will end after a minister told Parliament that a long-standing and unpopular pay freeze on public jobs is “under active discussion.”

Stung by losing their governing majority in last month’s election as the anti-austerity Labour Party advanced, Prime Minister Theresa May is under pressure to abandon seven years of belt-tightening as tragedies such as the Grenfell Towers fire and London terror drew attention to cuts in vital services.

Police, firemen, nurses and teachers have been subject to a cap of 1 percent on annual pay rises since 2013, with the government until now vowing to maintain it in order to bring down the deficit. That stance is becoming increasingly untenable with voters enthused by Labour Leader Jeremy Corbyn’s promise of free university tuition and billions on the National Health Service.

“We want to make sure that front-line public service workers including the police are paid fairly for their work, not least because of the contribution that they have made over the years to reducing the deficit that we have inherited,” Police and Fire Minister Nick Hurd lawmakers on Monday.

Hurd’s comment point to the Tories edging away from the cost-cutting policies that have characterized their government since 2010, when they came to power with David Cameron and his chancellor of the exchequer, George Osborne.

Britons feeling alienated and impoverished by austerity came to eclipse Brexit in a campaign that delivered May a rude political awakening just as she was about to embarked on divorce talks from the European Union.

Caving in?

Keeping the economy ticking and caving to public appetite for more largesse will be instrumental in how long May is able to stay in power and also reveal her negotiating strength. She needs to keep voters on side, her various party factions appeased and project strength to her Brexit counterparts in Brussels.

The Institute for Fiscal Studies estimates that if public sector pay rose at the same rate as the private sector, the government would need to find an extra 6.3 billion pounds ($8.2 billion) in two years time.

While Chancellor of the Exchequer Philip Hammond has acknowledged people are "weary" of austerity he has also noted increased investment in public services would mean higher taxes, more borrowing or stronger economic growth. A debt the equivalent to about 90 percent of gross domestic product is one reason to maintain prudence.

Financial constraints aside, May and her ministers have shifted gears after the election fiasco.

Foreign Secretary Boris Johnson -- touted as a future Tory leader down the line -- strongly believes pay rises greater than 1 percent can be made responsibly, without putting to much pressure on public finances, the BBC reported on Monday. Environment Secretary Michael Gove, who ran for May’s job, also seems to have come out in favor of easing up.

Earlier on Monday, Prime Minister Theresa May’s spokesman, James Slack, told reporters that the pay of public sector workers was reviewed by pay review bodies, and the government would respond when those groups made recommendations.

“Some have reported and we’ve accepted the findings, others will respond in due course,” he said, adding that nurses, doctors, dentists and armed forces had agreed to a 1-percent pay rise for the 2017-18 tax year.

— With assistance by Thomas Penny

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE