13/11/2017 13:03 GMT | Updated 17/11/2017 10:14 GMT

Why The Government Can Afford To Scrap The NHS Pay Cap, And Why They Can't Afford Not To

Peter Byrne/PA Wire

In the last few days of the General Election campaign earlier this year, Theresa May was confronted by a nurse at a Question Time debate, who asked if it was fair that her pay had barely increased since 2009. The Prime Minister responded by saying that while she recognises the work that she does, hard choices have to be made and that 'there isn't a magic money tree that we can shake which suddenly provides for everything that we want'.

NHS workers, as with workers across the public sector, have faced seven-year long pay squeeze. George Osborne introduced a two year pay freeze across the public sector from 2011/12, arguing that while public servants "did not cause this recession - but they must share the burden as we pay to clean it up." The pay freeze was followed by five years of pay being effectively capped at 1%.

The long pay squeeze has had a significant impact on NHS workers. A band five nurse is now paid £3,200 less in real terms today than in 2010/11. Had the pay cap continued as planned for a further two years, the gap would have been over £4,000 by 2019/20. While the Chancellor reportedly described public sector workers as 'overpaid', the Treasury's own analysis - which was only released after an FOI request by the GMB - shows that public sector workers are now paid less than private sector workers in comparable roles.

Beyond the direct impact on NHS workers, the long pay squeeze has had a growing impact on the NHS itself, contributing to a growing workforce crisis. The NHS Five Year Forward View set out in 2014 that "as the economy returns to growth, NHS pay will need to stay broadly in line with private sector wages in order to recruit and retain frontline staff". Yet since then, pay has lagged behind the private sector, and we are seeing the consequences. Satisfaction with pay has fallen by 10% since 2010, and the NHS is facing a growing challenge in recruiting and retaining the workers it needs. The number of nurses is falling for the first time in three years, and the number of vacancies has doubled in the last three years. In the face of growing challenges with recruitment and retention, NHS trusts have increasingly had to rely on agencies to fill staff shortages. The agency staffing bill reached £3.6billion in 2015/16, double the level of four years before.

The public sector pay cap seems to have had a significant impact on the fortunes of the Conservative Party too. The Conservatives went into this year's general election promising a continuation of the pay cap for a further two years up to and including 2019/20, which would have represented an unprecedented nine year pay squeeze. Conservative MPs and candidates reported the public sector pay cap being raised regularly on the doorstep by an electorate who are increasingly weary of austerity. There appears to be strong, cross-party support for lifting the public sector pay cap, particularly in the NHS. A recent poll by Lord Ashcroft found that 86% of people - and 79% of Conservative voters - think nurses should get a pay rise above the 1% cap.

So the NHS pay cap has contributed to a growing workforce crisis, and it has contributed to the Conservatives failing to get the majority they had taken for granted earlier this year. It has become increasingly clear that the Government can no longer afford to keep the NHS pay cap in place.

New IPPR research has shown that the Government can afford to lift the NHS pay cap. The headline cost of lifting the cap is significant. If pay in the NHS increased in line with CPI inflation over the next two years, it would cost £1.8billion extra by 2019/20 compared with keeping the pay cap in place. However, almost half of the cost is returned almost immediately to the Treasury, as lifting the pay cap would lead to higher tax revenues and lower welfare spending. Lifting the cap would also deliver a £250m boost to the economy, with a further £100million of this returned to the Treasury. Taking the fiscal and economic impact of lifting the NHS pay cap into account, the cost of increasing pay in line with inflation for the next two years would be just £950million a year by 2019/20.

The Secretary of State recently announced the NHS pay cap had been scrapped. While this is welcome news, three key questions remain. First, will NHS workers get a real terms pay rise, or will they see yet another year of pay falling behind both inflation and private sector earnings? The signs here are not good; the Government has lifted the cap for police officers and prison officers, yet both will get increases (2% and 1.7%) which remain below inflation. Second, will the Government fund the increase? Again, the signs are not good. In the case of the police and prison service, the additional cost will have to come from existing budgets. Surely this is not sustainable, particularly in the NHS where demand is rising rapidly and NHS Trusts went into this year with a multi-billion-pound underlying deficit. Third, does the Government plan to reverse the real terms cuts to public sector pay over time, or do they see lower pay as a new normal?

The Chancellor must use his Autumn Budget to answer these questions. He must ensure that NHS workers get the real terms pay rise that they deserve, and he must identify additional funding to pay for it. The Government can afford to scrap the public sector pay cap, and - given the growing workforce crisis in the NHS and their perilous political position - they can't afford not to.