I have just posted this thread on Twitter:
The news that there had been a (bad) pay offer in the NHS pay dispute still gave rise to the almost inevitable cry of 'how are you going to pay for it?' from every journalist in the land. So, let's look at the answer to that question and others arising from this deal. A thread...
The pay deal offered is 4% for 2022 plus about 6% in bonuses, to be followed by 5% in 2023 and (I very strongly suspect) 1% for the years thereafter.
In 2021/22 the NHS cost approximately £230bn for the UK as a whole. About 75% of that was for wages, or about £172bn. This is my base point for what follows.
In 2021 NHS pay rose by 3%, or about £5.2 billion. It should have risen by 5% because that was inflation: that would have been £8.6bn. The government saved £3.4 billion.
In 2022 the pay rise will be 4% plus about a 6% bonus. So the pay rise is a basic increase of £7.1 billion and a bonus of £10.7 billion, making £17.8 billion. If an inflation-matching pay rise had been made based on what should have been paid in 2021 that would have been £18.1bn.
After that, the pay rises are based on the 2022 figure excluding the bonus. So 5% in 2023 might sound fair but it is based on pay that is 6% too low to match inflation, so of course it does not make good the loss from inflation in 2023.
The pay rise in 2023 will be £9.2bn, but if total pay had kept pace with inflation another £15.2 billion of pay should have been made that year. In other words, underpayments in 2021 should have been made good and the 2022 bonus should have been repeated.
That £15.2 billion shortfall means that NHS will on average be 6.4% worse off in 2023 than they should be. That is a fact.
So why has this terrible deal been accepted? I can only think that someone in the nurses' negotiating team thinks that if inflation falls heavily then so too do prices. But that is not true.
I cannot stress enough that just because inflation is falling in 2023, and will be almost non-existent after that, does not mean prices are falling. It just means that they are not rising anymore. Inflation measures the change in prices, not absolute price levels.
And what that means is that the cost increase for which a bonus was needed in 2022 is still there in 2023. So if that 6% extra cost is not covered by additional pay in 2023 those in the NHS who do not get that pay will be worse off.
I have estimated that the shortfall in pay amongst NHS staff is about 6.4% from 2023 onwards. That means in the terms of the NHS as a whole that the government will be saving more than £11bn a year on pay as a result of this deal.
From 2023 onwards so big is that saving to the government that they will be well over £60 billion by the end of 2026.
But the result is disastrous for the NHS. The recruitment and retention crisis that it has will continue as a result. And another strike will not work when inflation has fallen to 1%, which is what the government is relying on.
The NHS will, as a result, continue to haemorrhage staff.
The nation's health will continue to get worse.
The number of people in the workforce will continue to fall.
And less tax will be paid, overall.
In fact, the loss of tax paid on the missing pay rises and on the pay of those who cannot work as a result of the NHS crisis would, I am sure, be more than enough to have paid for an inflation-matching deal on basic pay in 2022 and onwards. But the government has refused that.
What it actually refused was what it should have appreciated, if only it could have thought like a government instead of like a shopkeeper, was a self-funding deal for a better NHS. Literally, a full-pay offer could have paid for itself.
Instead, it chose a deal that cannot fund itself, because NHS staff had to have inflation-matching pay rises for a self-funding deal to work.
You would almost think the government does not want a functioning NHS, or the high-pay economy Rishi Sunak promised, or the people back at work Jeremy Hunt says he wants, because this deal will prevent all of those happening.
And saying that I have ignored the economic multiplier effect on growth from nurses having more to spend in the economy, which would boost growth for those they would spend their additional pay with, and result in yet more tax paid.
How to summarise this then? By thinking of the NHS as if it is a profit-maximising private company the government has offered a terrible pay deal that is bad for nurses, terrible for the NHS, dire for people in the country and awful for the economy. It really is that bad.
Economic madness does not come much worse than this. Excepting the fact, that is, that utterly bizarrely the NHS unions are recommending that this deal be accepted. I suspect that they too will suffer when their members realise how badly they have been misled.
The NHS is a long way from being out of trouble as a result of this deal: instead, things are going to get very much worse.
And for those who want them, these are my not very complicated workings on which this prophecy of doom is based. It's not rocket science.
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Well done for ATFQ from a previous blog.
To me the bonus payment is just an exploitative ruse played on desperate people to accept less over a longer period of time.
Let’s see what happens!
Your suggestion that the pay settlement negotiated by the nurses’ union might be based on the belief that falling inflation means falling prices is, sadly, quite plausible. Earlier today, I heard this misconception repeated on a national radio station (LBC), when Shelagh Fogarty declared that falling prices might encourage the nurses to accept the government’s pay offer. I sent her a text pointing out her error and about two minutes later received a phone call from LBC and an invitation to explain my “interesting point” on her programme. Unaccustomed as I am to being asked to take part in a radio phone-in, I was taken completely by surprise and declined.
I called too late to be on the programme
The same error was apparent in comments by Jackie Long on Channel 4 tonight
I felt despair when I heard presenters on TV saying to union reps that inflation is falling so why do they need that 10% or whatever? The unions need a common phrase they all reply with till it sinks in: costs have gone up by 10% and are not going down.
Agreed
I think you hit the nail on the head when you write that “one would almost think the government does not want a functioning health system”. I don’t think it does want a functioning public health system free for all at the point of delivery. It knows perfectly well that it is driving NHS staff into the private sector. It is aiming for backdoor privatisation. Were it to say this explicitly it would certainly lose the next election. The NHS is being reduced to the extent whereby anyone with the wherewithal goes private (how long do you wait for whip replacement these days?). Waiting for 2 hours for an ambulance with a 93 year old woman in agony as I did yesterday is just a small taste of things to come. 12 years of running the system down so as to make it impossible for the next government to improve things in a 5 year term.
My guess is that the RCN, which has never wanted to take industrial action, has caved because they think we’ll get a Labour government next year so they can try again.
I see no one has mentioned the stone cold fact that so many Brits like so much of the rest of the world have become unhealthy slobs. In Europe the Scots are the most obese. Whenever I look at UK news I am instantly aware of the difference between the French (where I live) and the Brits. Yes the French are going the same way.
So there are 4 problems facing the NHS, an ageing population, obesity, underfunding and a shrinking workforce.
Nowhere do I see any political party that is prepared to take on the food and drink industries. To stop the production and sale of unhealthy products. Indeed in the pandemic there was a Labour politician urging people to ‘go to the pub’.
Yes to a properly funded NHS but the time has come for a political party that is presented to the people by those who are not in the pocket/rectum of big business. Who are themselves physically fit. The Brits were never fitter than during WW11 when there was rationing.
Like everything else in life it all begins with education. Educating/teaching the young how to cook, what to cook. Real, meaningful physical education. Fit people don’t eat junk food, don’t abuse alcohol. Just think of how much less use of the NHS will be necessary with a fit, alert population. There used to be ‘domestic science’ but it was restricted to girls only – bring it back for boys as well. It would be hugely opposed by the junk food industry.
Education, not brainwashing has to be the basis of a healthy, financially solvent society. Mental health is now a huge part of the problem in the UK – stress kills and creates a huge market for abuse of drugs – alcohol, cocaine,smack. Pink Floyd got it right in 71 ‘quiet desperation is the English way’ – time for a change.
I do nit think people have chosen obesity
They have literally been sold it
The Tories don’t want the NHS to survive. That is precisely the point of continuous underfunding. The word “public” is anathema to extreme right politicians. The Tories have always known how popular the service . It could not be eliminated quickly so a long term strategy was devised. I believe it has been the objective since 1979 when Thatcher came into office. New Labour Right betraying the working class they were formed to defend.