Why public sector pay is now a headache for Starmer, not Sunak

Labour is still the best choice for unions – but whether they will support the party is another question, writes Andrew Grice

Starmer would inherit a bleak landscape from the Tories (PA)

Teaching unions’ decision to call off strikes is a much-needed win for Rishi Sunak, even if he is not yet out of the woods on public sector pay. Junior doctors will not settle for the 6 per cent plus the £1,250 rise for them the prime minister announced on Thursday, and the Unite union is warning of another wave of industrial action.

But, while Keir Starmer did not support or criticise the government’s decision on pay and Labour frontbenchers have kept out of individual disputes, Labour can no longer sit awkwardly on the fence and avoid the “what would you do?” question. 

The spotlight will turn to Labour next Friday, when pay will top the agenda as Labour’s national policy forum meets for three days of negotiations about the party’s programme for government. The Nottingham meeting’s decisions will then go to Labour’s annual conference in October, from which the party manifesto will be finalised closer to next year’s election.

Starmer allies hope to sort internal disputes by the conference so that the party can present a united front in an election year. However, pay in the public and private sector is emerging as a major flashpoint.

The unions, who have seats on the policy forum and half the voting strength at the annual conference, want a Starmer government to allow public sector workers to regain at least some of the ground lost during the pay squeeze under the Tories. I’m told Unite will demand the restoration of pay to 2010 levels and the abolition of the independent pay review bodies. Unison wants wage rises to at least keep pace with inflation.

Public sector pay would be between 12 per cent and 20 per cent higher if it had kept pace with the private sector since then.

By last summer, public sector pay was 4 per cent lower in real terms than in 2007, while private sector earnings were 1 per cent higher.  While Conservatives often point to the public sector’s generous pensions, they don’t pay the bills in a cost of living crisis.

Other unions are likely to demand that a Labour government would commit to accepting recommendations by the independent pay review bodies in advance. They were alarmed when Rachel Reeves, the shadow chancellor, refused to back this week’s proposals (before Sunak did) and made clear that in government, her tough fiscal rules would come first.

One union official told me that Reeves’ remarks were “universally unpopular” in the movement, even among unions close to the party leadership. Sharon Graham, Unite’s general secretary, put Labour “on notice” that “it doesn’t matter who’s in power: when it comes to the jobs, pay and conditions of our members we will do what it takes to make sure they get a proper deal”.

After 14 years in the cold, unions would understandably have great expectations of an incoming Labour government – one they would have helped to win by providing money and troops on the ground.

Yet Starmer would inherit a bleak landscape from the Tories, unlike Tony Blair in 1997 when the economy was growing. With the pay of 5.7 million public sectors accounting for a third of government spending on services, Starmer believes he could not suddenly turn on the taps.

Union leaders also worry that Starmer appears to be diluting his promise of “fair pay agreements” across the economy. In proposals to the policy forum, the leadership wants to remove a reference to “endemic low pay, insecurity and lack of progression” in social care, retail and hospitality so Labour avoids “alienating” companies and shows it is “demonstrably the party of business”.

When its policy review began, the party said: “Adult social care will benefit from a fair pay agreement as the first priority of a Labour government.” While that remains a goal, union officials are worried it is no longer the top priority and that the leadership has cooled on fair pay deals in other sectors.

That Labour would have to govern in hard economic times is the reality, not a negotiating tactic by Starmer. If he becomes PM, unions might have to be patient on pay but would enjoy significant gains in other areas.

Starmer remains committed to introducing a major Employment Rights Bill in the first 100 days of a Labour government. Workers would get protections from day one in a job and have a right to flexible working, while Labour would ban “fire and rehire”, “fire and replace” and zero-hours contracts.

Crucially for the unions, Labour would repeal the Tories’ restrictions on industrial action such as requiring a 50 per cent turnout in strike ballots and the provision of minimum service levels. Gig economy workers would have a right to organise through unions.

The unions have a strong case on pay but, as Starmer bluntly told Unite’s conference on Thursday, the choice for them is between a Labour government that would “tilt the direction of this country firmly and decisively towards working people” and a Tory administration that would “bring in further anti-union legislation."

Union leaders might wish for the government of their dreams, but should recognise their members would be better off under a Labour one and that rocking the party’s boat now would undermine Starmer’s chances of winning power.