Jan 21, 2023
UK’s Sunak Looks to Pay Deals to Avert February Strike Chaos
(Bloomberg) -- UK Prime Minister Rishi Sunak will look to begin closing a series of pay deals with trade unions, as the government enters 10 days of crunch talks ahead of coordinated strike action planned for early February.
Members of the Cabinet have told Sunak he must act fast to avoid a week of strikes that threaten to bring the country to a standstill, one minister said. Teachers, civil servants, train drivers and university staff will walk off the job on Feb. 1. Nurses and ambulance workers will strike again on Feb. 6, intensifying pressures on the teetering National Health Service.
Pay deals are close with rail workers and firefighters, a government official said. The hope was these agreements would have a domino effect, unlocking talks with other unions and resulting in a quick succession of deals, the minister said, with nurses ending up with a pay rise of about 9%. Union leaders have already lowered their initial demand for a 19% increase to about 10%.
However, a government official cautioned that rail negotiations are further along, and other sectors would take longer to resolve. Rail, Maritime and Transport Union boss Mick Lynch has privately been a more reasonable negotiator than some other unions, despite his public image as a left-wing firebrand, according to a person familiar, noting that this didn’t necessarily help ministers seeking deals with teachers and NHS workers.
“We have enormous respect and gratitude for all our public sector workers, especially those in the NHS,” Sunak said this week, adding: “We continue to want to engage constructively in dialog with them.” At the same time, the prime minister pressed the case for passing his government’s legislation, which would curb public-sector workers’ ability to strike by enforcing minimum safe staffing levels.
Royal College of Nursing chief Pat Cullen said this week that she had “extended an olive branch, in fact a whole tree, to the government,” calling on Sunak to meet the union “halfway.”
The strikes were at the center of a clash in Parliament on Wednesday between Sunak and Labour leader Keir Starmer. The opposition party has sought to project an air of competence with polls showing them heavily favored to win an election that must be held in January 2025 at the latest.
Starmer accused Sunak of presiding over “lethal chaos” as lengthy ambulance waits resulted in heart attack patients dying. Sunak, in turn, pressed Starmer to support the strikes bill, chiding the Labour leader for not taking steps to stop the job actions.
The push for pay settlements is constrained by tight public finances and the government’s desire to avoid a wage-price spiral just as inflation starts to ease. Chancellor of the Exchequer Jeremy Hunt announced £55 billion ($68 million) of tax hikes and spending cuts to stabilize the UK’s public finances in November and is wary of more borrowing, with debt-servicing costs already at the highest level since at least 1956.
The Treasury has told ministers that further pay awards must come from existing budgets, a person familiar with the matter said, although some departments have found possible workarounds by identifying billions of pounds of efficiencies and pushing some costs into future accounting years. The Treasury is also open to justifying increased pay by concluding that strike action would cost the economy even more money, the person added.
Sunak wants quicker progress on talks after mounting criticism from within his own ruling Conservative Party of his strategy over the past month. A Tory MP said it was always inevitable the government would have to meet in the middle and that deals should have been done in December.
Another MP criticized the decision to go to war with the unions with the minimum service legislation, which they thought would have no material effect. They warned the government had lost the argument with the public.
Downing Street is eyeing the March 15 Budget to reset a political narrative dominated by industrial action for much of Sunak’s first three months in power. One ruling-party MP said the lack of honeymoon bounce had made some colleagues restless, and another Tory called for fresh approach focused on improving the economy.
To that end, Sunak has told ministers that getting more inactive workers into employment would be the key theme of the budget and the year ahead. Labor shortages are helping to drive inflation since workers feel they can’t easily be replaced and have more leverage in pay negotiations.
Hunt and Work and Pensions Secretary Mel Stride held meetings this week with officials and business groups to discuss policy solutions in three areas: 18-24 year-olds failing to enter the jobs market after the Covid-19 pandemic, women unable to go back to work due to exorbitant childcare costs and over-55s taking early retirement en mass.
The Treasury is focusing on people outside the scope of the benefits regime where government traditionally has few policy levers, two people familiar with its internal discussions said. It is considering funding to get over-55s back into work based on the “Kickstart” program for young people after the pandemic, and the “Restart” initiative for the long-term unemployed. This could be called “Reenter,” one of the people said.
The effort could include a specialist training program to help people pursue different careers in areas with labor shortages, a more flexible apprenticeship program applying to older people with tax incentives for employers, and expanding the mid-life health checks to show people in their 50s they can’t afford to retire yet.
“With recruitment remaining challenging and vacancies 63% higher than pre-Covid levels, venues are doing all they can to hire staff, but we need to see action and investment from government, too,” UKHospitality Chief Executive Officer Kate Nicholls said Friday. “There are simple solutions available.”
However, the proposals currently under consideration wouldn’t represent radical reform to the labor market, one person involved acknowledged. The Treasury is so far resisting calls from Tory MPs to spend a perceived windfall from lower natural gas prices on major tax cuts in March.
One government insider insisted the Treasury didn’t have a large amount uncommitted money to spend, noting that gas prices remained volatile and tax revenues are expected to fall. Any extra money may be immediately prioritized for defense spending following a coming update to the government’s “integrated review” on security, defense and diplomatic polices, they added.
Tory MPs hoping for bigger tax cuts may have to wait for the Autumn Statement or Spring Budget in 2024. Downing Street’s strategy is to spend much of 2023 reestablishing stability and demonstrating competent government, then taking advantage of an improved global economic picture toward the end of the year to present a more positive message to voters ahead of the election.
Whether that is enough to satisfy Tory MPs or the public is another question. One MP said the chief question among their colleagues was: what’s the plan? Another said Sunak had six months to show he could turn things around. Another warned the current approach would simply mitigate electoral disaster, commenting that prime minister’s plan appeared to be to lose 200 seats in the 650-seat chamber, rather than 300.
--With assistance from Ellen Milligan, Emily Ashton, Kitty Donaldson, Andrew Atkinson and Joe Mayes.
©2023 Bloomberg L.P.