Starmer and Reeves made a pious display of paying the union danegeld. Guess who’s back for more?

This morning’s Times reports that the Government could be facing another round of public sector strikes after ministers were told that “millions of public sector workers including teachers and nurses should be given pay rises of as much as four per cent” – and even if not, it’s going to have to put the squeeze on public services again.

Independent pay review bodies in England are apparently going to recommend four per cent for around half a million teachers and about three per cent for over a million NHS staff. Unfortunately, this is more than the 2.8 per cent for which Rachel Reeves allowed in her spending plans.

That leaves three options. First, try and refuse, as did the Conservatives; that would mean strikes. Second, break her promises on taxation again to fund the additional increase whilst protecting budgets. Third, demand that departments make up the difference from within their current spending envelopes via – everyone got your bingo cards? – ‘efficiency savings’.

Predictably enough, the Government seems to be going for option three (although it might still face strike action if the unions don’t think the official recommendations are good enough). Equally predictable are the likely consequences: what ‘efficiency savings’ will translate to in practice will be even more cuts to capital budgets; ratcheting another few degrees down the arc of the doom spiral.

Labour could scarcely do otherwise, politically. After all, the first thing Reeves and Sir Keir Starmer did upon taking office was rip up existing spending plans (including a projected £20bn increase in the defence budget) to fund big settlements with the public sector unions – all without any conditions regarding things like improvements in working practices. The Prime Minister represented himself as taking bold action to end the strikes and, for example, get NHS waiting lists down.

Did it occur to him that he was doing this by paying a danegeld, and what the likely consequences of that would be? It’s difficult to see how he could have failed to do so. Perhaps that was simply a problem for Tomorrow Keir. Alas, tomorrow has arrived; the fundamental point was summed up nicely by Ben Zaranko from the Institute for Fiscal Studies:

“Higher pay this year means higher pay in all future years, potentially storing up trouble for future years, when departments are told to live within the much tighter settlements to be set out in June’s spending review.”

Wage claims are simply another tooth on the vice slowly crushing Britain’s public accounts, caught between a stagnant tax base and relentlessly expanding revenue expenditure commitments. The easiest thing for politicians to do in the short term is cut capital spending, so they do – but every time they do, they reduce again the odds of putting the country on a different, less calamitous trajectory.

Unfortunately, the previous government hardly had a more sustainable strategy. Whilst the Conservatives were more willing to square up to the public sector unions, they did so without any sort of plan. Given the leverage enjoyed by NHS workers in particular, simply refusing to settle was never going to be sustainable.

The lesson the Tories ought to have learned from their own mythology – the totemic battles against the miners and printworkers in the 1980s – is that the first step towards actually winning a trial of strength with the unions is for government (or management) to give itself an actual victory condition, i.e. structural reform which permanently reduces or eliminates the union’s leverage.

Minimum service legislation, the previous government’s big idea, didn’t do this, and so it didn’t work. An actual solution, in the public sector, would involve fundamentally reforming how employees are employed.

If (for example) schools were grant-maintained and the legal employers of their teachers, there would be no more national pay bargaining and thus no more sector-wide strikes. It wouldn’t require new anti-strike laws, either; with this reform in place, existing legislation against secondary action would confine any strike to a single school or academy chain. Having NHS staff employed by hospital trusts would have the same effect.

Perhaps there are other ways of achieving the same thing. But until government decides to implement some sort of serious structural reform, public employees in these sectors will always be able to put it over a barrel sooner or later – and absent the magical return of serious growth, the result will be the further erosion of the shrinking share of the budget left over to actually try and improve things.