On Wednesday, an embattled Phillip Hammond will present his Autumn Budget. The Tories have tried hard to fight against including a public sector pay rise after years of real-terms cuts – but their arguments have just got even weaker. 

New research from the IPPR think tank shows that the tax receipt increase and benefit-bill reductions that would come from scrapping the pay cap make it much more economically viable than previously thought.

The headline cost of increasing public sector pay in line with inflation is £5.8 billion for 2019/20. The cost of ensuring pay ‘catches-up’ with private sector pay growth and inflation is £12.7 billion.

But when you look at the impact on the wider economy, it’s a different picture. The authors show that:

“A significant portion of these costs would be returned to the Treasury almost immediately in the form of higher taxes and lower spending on means-tested benefits.

“After taking these receipts and savings into account, the immediate net cost of increasing public sector pay in line with CPI falls to £3.55 billion, while the cost of our ‘catch-up’ scenario is £7.75 billion.

That means the Treasury gets back around 40% of any pay rise – and that’s without taking into account the economic growth that would come from injecting billions of pounds into local economies and the pockets of low-paid workers.

Source: Scrapping the public sector pay cap wouldn’t cost half as much as you’d think… | Left Foot Forward

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