Keir Starmer’s Labour government is facing a dilemma that could define its credibility as a progressive alternative to the Conservative Party.

After last year’s promises to support public sector workers with fair pay rises, Keir Starmer’s Labour government now finds itself on the brink of rejecting higher-than-expected pay recommendations for teachers and NHS staff.

Instead of offering the necessary funding to meet these demands, Labour seems to be falling back on budget cuts and “efficiency savings.”

But this decision leaves Labour facing a dilemma that could define its future credibility: Is Starmer’s “progressive” mask slipping?

The pay proposal problem

This year, the independent pay review bodies for teachers and NHS staff have recommended pay rises of four per cent and three per cent respectively—both higher than the 2.8 per cent for which the government had budgeted.

These increases are modest in light of inflation and the rising cost of living – but the government is saying they would strain already-tight public finances and no additional funding will be made available.

The government’s counter-proposal is that any pay rises beyond what was planned must be covered by existing budgets and efficiency savings – threatening cuts in vital services, job losses, or both.

A familiar false dichotomy

This stance is eerily reminiscent of previous governments—both Labour and Conservative—that have sought to placate public sector workers with short-term fixes rather than addressing the root causes of chronic underinvestment in these essential services.

The offer to absorb the cost of the increased pay within existing budgets seems like an attempt to avoid the political fallout of rejecting the pay rise outright.

But it also suggests that Labour, like the Tories before them, is unwilling to make the hard choices necessary to fund the pay rises that are needed.

Last year, the Labour government accepted pay review body recommendations in full, granting pay rises of 4.75 per cent to six per cent, which helped to end widespread industrial action across public sector unions.

At the time, Labour’s rhetoric suggested that working closely with workers was key to improving the NHS and public services more broadly.

But now that the going has got tougher, the government’s response appears more cautious—perhaps even disengaged.

But can Labour afford the cost of strikes?

The looming threat of strikes from teachers and NHS staff is very real.

Both groups have already indicated that they will not accept pay rises that do not come with full funding, and they are ready to take industrial action if necessary.

The government will be well aware that a fresh wave of strikes could derail its promises to reduce waiting lists, improve service delivery, and maintain public sector morale.

Public sector unions, like the National Education Union (NEU) and the British Medical Association (BMA), have been vocal in their demands for pay rises that address the growing crisis in recruitment and retention.

The NEU’s Daniel Kebede has been clear: any pay rise must be above inflation, must address recruitment crises, and, most importantly, must be fully funded. Without these assurances, the risk of industrial action remains high.

Fiscal prudence or fiscal stagnation?

On the other hand, Labour is caught in a trap of fiscal prudence.

Chancellor Rachel Reeves has emphasized the need to keep government spending in check, warning that higher public sector pay could lead to tax increases or even cuts to other essential services.

The Institute for Fiscal Studies (IFS) has weighed in, noting that any increase in public sector wages would necessitate tough trade-offs—likely leading to cuts in other vital services or tax hikes.

The government’s position is clear: public sector pay must be balanced against the broader financial situation. But the broader public will be watching closely to see if this logic holds up, especially given the government’s recent stance on taxation and wealth.

The real solution: taxing wealth, not depriving workers

If the government is truly committed to improving public services and supporting the public sector, it’s going to have to reconsider its approach to funding.

Instead of squeezing public services further or relying on efficiency savings, Labour should consider the progressive taxation proposals that many, including This Site, have advocated—specifically, increasing taxes on corporate profits and wealth.

If the Labour government were to introduce higher taxes on the wealthiest individuals and corporations, it could generate the necessary revenue to fund these pay rises without threatening the stability of public services.

This would not only improve the lives of hard-working public sector employees, but it would also ensure that the wealthiest bear a fairer share of the burden.

The test of progressive leadership

Ultimately, the question Labour faces is this: is the party genuinely committed to social justice, or is it simply repeating the same old policies of austerity and half-measures that we have seen from both Labour and Conservative governments for years?

We must judge this government on that basis.

Keir Starmer and his team must decide whether to stand firm on their promises to public sector workers or to retreat into the safety of “fiscal caution”.

If Labour chooses the latter, it risks losing the trust of the very people who helped the party to victory last year.

But if Keir Starmer opts to embrace a more progressive approach—one that calls for higher taxes on the wealthiest to support essential public services—he might just find a way to create a fairer, more sustainable future for all.