Thread by @faisalislam

NEW: Treasury submission to public sector pay review bodies warns elevated inflation rates are temporary, unless “people come to expect high inflation to continue, for example if workers demand larger wage increases to maintain their purchasing power”…
assets.publishing.service.gov.uk/government/upl…

HMT specifically warns that “public sector pay increases” could “exacerbate temporary inflation pressure” by contributing to higher wage demands across the economy… and of a “trade off” between higher pay rises and recruiting more staff/ public services investment

In particular it is critical of the idea that public sector pay rises should account for the coming squeeze from the rise in National Insurance, saying this would use up funding for NHS/ social care and that doesn’t happen in the private sector

It’s interesting to see the Treasury spell out in detail that generalised inflationary wage rises are bad because they risk higher inflation and wage settlements across the economy - this is often unsaid - and it’s also not the tone of the earlier wage rises for all argument

implication though its left unsaid is public sector workers shouldnt expect pay awards to match the rate of inflation over next few months of 4-5%, because that rate is expected to fall back to 2% - but that obviously will lead to a period of some months at least of real pay cuts

This is the Treasury background advice on economics - normally pretty mundane, but noteworthy because of the high rate of inflation … next stage is that Departments will submit on both “affordability” ie the lack of separate funding for pay rises, and recruitment and retention…

The Pay Review Bodies then take into account everything and independently recommend appropriate pay rises…

It’s then up to the Government whether to accept - against a backdrop of inflation at around that time being 4-5%