In the latest sign of the difficult times likely to still lie ahead for Theresa May’s UK government, a major split seems to have emerged between two of the most prominent members of the cabinet.
Philip Hammond, the Chancellor of the Exchequer, has warned that taxes in the UK will likely need to rise, in order for the budget to meet the increasing calls for more funds to be made available for public sector workers, and for schools and hospitals.
Michael Gove, the Secretary of State for Environment, Food and Rural Affairs, openly disagreed when asked about his view in an interview with the BBC.
Public Sector pay cap
One of the most thorny issues for Mr Hammond is that of removing the public sector pay cap. The policy, which has been in effect since 2012, puts a ceiling on the annual wage rises for public sector workers at 1%.
Critics, such as Tim Farron, the current leader of the Liberal Democrats, point to the fact that the cap is less than the annual rate of inflation, thereby resulting in wages for the public sector effectively being cut in real terms.
Perhaps more pressingly for Mr Hammond and the government, a group of as many as 40 Tory backbenchers have threatened to vote down the Budget, if the Chancellor doesn’t find a way to end the cap.
Calls for the cap to be scrapped have further intensified recently, following the terrorist attacks in London and Manchester, and the Grenfell Tower fire tragedy. The response of the country’s emergency services to these incidents has been universally and overwhelmingly praised, and many have called for an actual pay rise for the personnel.
Supporters of maintaining the pay cap claim that the policy is a necessary evil. “Pay restraint is one of the many difficult choices the government has had to make to protect jobs while helping to put the UK’s public finances back on track.
The independent Office for Budget Responsibility estimates that our current pay policy will protect 200,000 public sector jobs”, a Treasury spokesman said.
Insisting on austerity
The Institute for Fiscal Studies (IFS), an independent economic research body, calculates that scrapping the public sector pay cap would blow a hole of at least £6 billion a year in the UK budget, but that’s not the only financial headache the Chancellor is faced with.
There have also been calls from within the government for more spending in other areas too. Justine Greening, the Secretary of State for Education, has pledged more money into education, and Jeremy Hunt, the Health Secretary, wants more spending in healthcare too.
For his part, Mr Hammond has repeatedly rejected calls for increasing the government’s borrowing, a view that’s also shared by PM Theresa May, as well as Greg Hands, international trade minister. “We must live within our means and that is the right thing to do. We’ve reduced the deficit by three quarters since 2010. That is work that is still ongoing”, he said.
Other ways the Chancellor may look to raise the necessary funds include limiting the pension relief for high earners, reversing a decision to cut Corporation Tax, or increasing the levy paid by the self-employed. All these measures, though, are either politically difficult to achieve, or fall short of the amounts required.
All the signs point to another tricky moment for Theresa May’s government, come Autumn when the Budget will need to be voted on.