England economy faces £1.7bn hit from key worker pay cuts this year – TUC analysis

• £3.2 million average hit per constituency, northern seats worst affected
• Cutting pay “no way to thank key workers” and will level down pay for all workers, says TUC

New analysis published today (Friday) by the TUC reveals the economic hit from government plans to cut pay rises for key workers in the public sector.

National, regional and local impacts

A total of £1.3 billion will be cut from key worker pay settlements in England this year, following announcements made by the chancellor in November 2020.

The analysis calculates the hit to the economy from the difference in economic activity expected if pay settlements go ahead in full, compared with if the chancellor implements the cuts.

For the year April 2021 to March 2022:

• The hit for England is -£1.7 billion
• The average hit per constituency is -£3.2 million
• The regions suffering the worst proportionate hits to household spending power are: (1) North East, (2) North West, and (3) Yorkshire and the Humber

To allow comparison between constituencies, the TUC calculated and ranked the loss of spending power per head compared to the previous year.

Of the top 30 worst hit parliamentary seats:

• Seven are in the North West: Manchester Central, Copeland, Liverpool Riverside, Salford and Eccles, Preston, Liverpool Walton, Blackpool North and Cleveleys
• Seven are in Yorkshire and the Humber: Leeds Central, Sheffield Central, Kingston upon Hull West and Hessle, Bradford West, Wakefield, Doncaster Central, York Central
• Five are in the West Midlands: Birmingham Ladywood, Stoke-on-Trent Central, Birmingham Edgbaston, Wolverhampton North East, Dudley North
• Four are in London: Cities of London and Westminster, Holborn and St Pancras, Bethnal Green and Bow, Bermondsey and Old Southwark
• Three are in the North East: Newcastle upon Tyne Central, Newcastle upon Tyne East, Middlesbrough
• Two are in the East Midlands: Nottingham South, Deby North
• One is in East England (Hemel Hempstead); one in the South West (Bristol West); and none are in the South East.

Fairness for key workers

Millions of key workers who kept the country going through the pandemic will lose the pay rises they were expecting.

The TUC is encouraging the chancellor to reconsider, and to commit to policies that will improve pay and conditions for key workers.

These should include:

• Fair pay rises for key workers in the public sector – with a plan to restore wages to their levels before austerity
• Guarantee that all outsourced public sector workers will get a pay rise so that they earn at least the real Living Wage
• Action to ensure that every key worker in every sector gets a pay rise, including raising the national minimum wage to at least £10 per hour
• Ban zero-hour contracts – and use the long-awaited employment bill to strengthen rights to fair working conditions for key workers

Impact on other workers and local economies

The TUC argues that cutting key worker pay weakens wage growth for other workers too – especially those in jobs that directly depend on consumer spending.

If public sector key workers are forced to tighten their belts, the reduced spending starts to hit businesses too – and that impacts on other workers’ pay.

The TUC says that the chancellor must not repeat the mistakes of the 2010s. Millions of public sector workers saw their pay capped by George Osborne. They lost thousands of pounds – and the knock-on impact was wages falling across the economy and the worst slump in living standards in more than 200 years.

TUC General Secretary Frances O’Grady said:

“Key workers have kept the country going through the pandemic. The Prime Minister clapped them, but his applause will ring hollow if he cuts their pay.

“Boosting key worker pay helps everyone. It puts more money in the pockets of working families. And their spending supports jobs in local businesses and high streets.

“This will help to level up our unequal economy. And it gives key workers the respect they have earned.”

ENDS

Notes to editors:

- Headline data for regions and constituencies: This link provides the main headline results from the analysis for all English constituencies and regions. It includes (1) financial amounts for the economic impact, and (2) national ranking for severity of impact. The filter function can be used to obtain regional rankings: LINK TO HEADLINE DATA

- Full data: This link provides the full data used in the analysis, including calculations for the loss of spending power as a percentage of gross domestic household income, which is used to produce the rankings: LINK TO FULL DATA

- Explanatory note on analysis:

- The TUC’s analysis calculates the hit to the economy by comparing the economic activity expected if pay for public sector workers subject to the pay freeze had grown at the same rate as in the last 12 months, with the reduced activity expected from the cuts.

- The TUC’s calculation used ONS data for the number of employees working in the public sector, public sector pay, population and gross disposable household income; and OBR data to project gross disposable household income. Our calculations use median pay to calculate lost wages and as a result, the final figures will likely be an underestimate as the median pay figure will include many who will get a pay rise.

- Detailed sources can be accessed in the ‘full data’ spreadsheet (see above).

- To show the impact an increase in spending power has on demand and on local economies, a multiplier of 1.3 was applied to the loss of public sector earnings based on the midpoint of the multiplier range identified by IMF research in the last recession.

- The Cities of London and Westminster constituency is an outlier due to the unusually high proportion of public sector workers relative to residents compared to other constituencies.

- Although topping the regional ranking for the worst hit, the North East only has three constituencies in the top 30 as it has a smaller population and fewer seats than other regions.

- Pay cuts for key workers in the public sector: In November 2020, the chancellor announced a pay freeze for all public sector workers apart from healthcare workers and people who earn less than £24,000 a year. Based on data provided by HMT, the TUC estimates that 2.6 million public sector workers will be subject to the freeze in 2021.

- ‘Winning a pay rise for key workers’ campaign: The TUC is running a campaign for fair pay for key workers, including those in both public and private sector employment. Further details of the campaign are here: https://www.tuc.org.uk/campaigns/winning-pay-rise-key-workers

- About the TUC: The Trades Union Congress (TUC) exists to make the working world a better place for everyone. We bring together more than 5.5 million working people who make up our 48 member unions. We support unions to grow and thrive, and we stand up for everyone who works for a living.