Pay: behind the headline

The first thing to note is that a deal for 2021/22 has not been finalised. The government has suggested 1% to the pay review bodies, which will make recommendations on the pay of doctors, dentists and all Agenda for Change staff in May. But the Office for Budget Responsibility has forecast inflation could rise to 1.5% this year, so the government’s suggested pay rise would become a real-terms pay cut.

It’s difficult to pin down figures, but it appears a 1% rise for all staff would add more than £500m to NHS costs. The Department of Health and Social Care has said any more would require budgets to be reprioritised. But as NHS Providers has pointed out, the government budgeted for a 2.1% pay rise in 2021/22 under the five-year funding settlement, enshrined in law as part of the NHS Funding Act 2020.

Of course, the Covid pandemic has changed the demands on public finances and, with other public sector workers apart from the lowest paid facing a pay freeze, the government would say 1% is a good deal. On the other hand, the pandemic has galvanised public support for NHS workers, with many backing their angry reaction to the suggested 1% rise.

NHS Providers deputy chief executive Saffron Cordery said the pandemic had strengthened the case for a larger pay rise. She added: ‘Some will think that the government is snatching planned pay rises from the pockets of deserving NHS staff so they don't have to fund the extra costs of Covid-19, which the chancellor personally committed he would meet.

‘We assume that the pay review bodies will take full account of these published assumptions in the recommendations they make.’

Questioned by the Commons Treasury Committee on 11 March, chancellor Rishi Sunak (pictured) sidestepped questions about the 1% proposal, insisting the government’s public sector pay policy was ‘proportionate, fair and reasonable’. ‘The majority of those in the public sector will see a pay rise next year, but that’s been done in a more targeted way in recognition of the circumstances that we face,’ he added.

Austerity effect

NHS pay is complex. While the Agenda for Change pay spine looks relatively simple, staff on the same pay point can receive different salaries depending on where they are in the country, their specialty and the hours they work.

And, to put the government's 1% proposal in context, it is worthwhile considering the recent history of NHS pay. Following the international banking crisis of 2008 and the introduction of austerity measures in the UK, NHS pay rises were restricted to between 0% and 1%. Inflation means the pay of staff at the top of band 5 has declined by 15% since 2010/11, according to a study by London Economics for the NHS trade unions. The study argued that even a 10% rise for Agenda for Change staff is affordable – even though the headline cost would be £3.4bn, benefits to the exchequer, such as tax receipts and recruitment savings for the NHS, would produce a net cost of £660m.

Pay has not been so contentious over the last three years because of a deal introduced in 2018, which moved away from the recent parsimony. The reforms sought to aid recruitment by increasing starting pay in every pay band and support retention by increasing basic pay for those at the top of each band. New or newly promoted staff are expected to be appointed at the bottom of the appropriate pay band.

Staff received real-terms pay growth under the deal – a cumulative 6.5% for those at the top of pay bands 2 to 8c. The pay bands were simplified, removing many of the pay points and reducing variations in the size of gaps between pay points.

The Department’s 2021/22 NHS pay review body evidence said the basic pay of individual Agenda for Change staff groups increased in 2019/20 – for example, nurses and health visitors by 2.9%, midwives by 3.2% on average. However, all staff groups have additional earnings – geographical pay supplements, unsocial hours premiums or overtime enhancements. For nurses, this averaged an additional £4,028 (12% of total earnings), and midwives £4,958 (15%) in 2019/20.

Overall cost

Other changes could edge the overall increase in pay costs towards the 2.1% assumed in the five-year funding settlement.

The Department has pointed out that under its proposal the overall increase in the Agenda for Change pay bill would be 1.7% – the additional 0.7% due to the ending of transitional pay points in 2021/22 for bands 5, 6 and 7. These staff will move directly to the top of their bands on 1 April. Affected staff in band 5 will receive an 11.67% increase, and band 6 a 12.17% rise. Those in band 7 will get a rise of 6.66%.

The pay of some staff in bands 8 and 9 has been protected during the transition to the new system at a cost of 0.1% of the non-medical pay bill, according to NHS Employers. Ending this protection would result in a small saving, though extending pay protection would create a small net pressure marginally above the 0.1%, employers said in its submission to the pay review body.

Pay drift – where, on top of any annual pay rise, staff can move to a higher pay point each year – could also increase the Agenda for Change bill. According to the Department’s evidence, in 2019/20 overall average pay drift was 0.3% – pay increased by 0.3% more than the headline basic pay rates, due perhaps to more staff at higher bands, or more at a higher pay point.

From 1 April, all staff will be subject to a new pay progression regime – though those who joined after 1 April 2019 or promoted to a new post in a higher band are already subject to this system. All staff will have a pay step review on the anniversary of the date they commenced employment under their current band. While progression under the previous system was automatic, the new review is meant to be more analytical, linking higher pay to the quality of care and not time served.

If the pay review bodies do back a bigger pay rise than that suggested by the government, managers will insist it should be fully funded.

They will also be worried about the potential effect of a headline 1% rise on NHS recruitment and retention. The union response, with some considering industrial action, will be crucial, and both could affect the health service’s ability to recover its waiting list backlog.

A letter from four health unions, including the Royal College of Nursing and the British Medical Association, to the chancellor warned of staff exhaustion in the face of the need to recover the treatment backlog. ‘That is of course if they stay working in the NHS; an offer like this is more than likely going to cause many to simply walk away in despair and this will have a terrible impact on patient care,’ they added.

In the 2020 staff survey, which was published this week, nurse satisfaction with their pay dropped from 36% to 33%. ‘These aren't encouraging results for the drive to grow nursing numbers by 50,000 which is both a government promise and a frontline necessity,’ said Nuffield Trust director of strategy Helen Buckingham.

Going into 2021, the key word appears to be uncertainty. With the pay review bodies not due to report until May, uncertainty over how the 2021/22 pay awards will impact on NHS bodies’ finances and, in the longer term, uncertainty over how an award that could be below inflation impacts on staff recruitment and retention.