The Guardian view on public sector pay: higher taxes on the rich are needed to fix broke Britannia | Editorial

It is unlikely that champagne corks will be popping in government offices, school classrooms and NHS hospitals. But they probably are in the City. While the public sector is offered a below inflation pay hike of 6%, wage growth in finance and business services is running at 9%. The private sector can raise its prices to pay for higher salaries or just to make more money. The public sector cannot. Instead Rishi Sunak argues that the state’s wage bill must be paid for by cuts to the services that workers deliver. Mr Sunak’s decision means that pupils will have fewer books and patients are left sicker because teachers and doctors need extra pay. Rising interest rates mean austerity for public services and pain for mortgage-holders, but they make for good business in the Square Mile as UK gilt yields become more attractive to investors.

“It was the best of times, it was the worst of times,” begins Charles Dickens’s A Tale of Two Cities, a cautionary story about widening divisions in the run up to the French Revolution. Britain is, thankfully, in a far less feverish moment. The economist Olivier Blanchard has noted that inflation is “fundamentally the outcome of the distributional conflict, between firms, workers, and taxpayers”. Some unions have rightly fought and won an acceptable deal. But wider tensions are not being adequately managed to allow for broader, sensible negotiations in which the pain is shared. Instead Mr Sunak, and the Bank of England, tilt the scales in favour of private business interests and a recession by relying solely on interest rates. Ongoing strikes are a symptom of such a strategy.

The government’s case is that higher taxes and more borrowing would be ruinous. This idea is unfortunately reinforced by a questionable forecast made by the Office for Budget Responsibility (OBR), which predicts the national debt of the UK tripling by 2070. In truth it is the government that decides how far the interest paid on its debt should be determined by demand in the money markets. Mr Sunak believes that demand should be primary and has woven a fiscal straitjacket, through the Treasury’s design of the asset purchase facility and by selling inflation-linked bonds: the more the state struggles, the tighter the binding becomes.

Balanced-budget ideas, depressingly, have found supremacy in British politics. Yet few things matter more than life and death. If life expectancy and “healthy life expectancy” – a measure of the years people live in decent health – are more important measures of how a country is doing, the OBR has some sobering news. The UK has the lowest healthy life expectancy at birth of any major developed economy bar the US, and is falling behind Italy, Japan, France and Canada in terms of life expectancy.

Whoever wins the next election will have to spend money to repair the damage done by chronic state underfunding by the Conservatives on top of Brexit, the pandemic, and the Ukraine war – as well as rewire the economy to deal with an ageing population and net zero. But without careful design this spending will be inflationary: post-Covid Britain saw how quickly supply disruption translated into rising prices; how labour shortages could send wages shooting up; and how there was little restraint on companies hiking prices. Government expenditure, it seems, can only increase in a non-inflationary way if fiscal space has been created by reducing private disposable income, ideally through higher taxes on the wealthiest.