Can Stormont afford public sector pay rises?

In January, thousands of workers took part in a public sector strike in Northern Ireland

The chancellor has hinted that she may give public sector workers above-inflation pay rises this summer.

Rachel Reeves' comments came as it is understood independent pay review bodies have recommended an increase of 5.5% for teachers and some NHS workers in England.

That could have an impact for workers in Northern Ireland and on Stormont’s finances.

Both teaching and health workers unions took strike action over pay disputes in 2023/24 and have been waiting for further information regarding pay deals.

Who sets public sector pay in NI?

Ultimately most public sector pay deals are signed off by Stormont ministers.

A notable exception is local government where trade unions negotiate with councils.

For some groups of workers, including the health service, there is an assessment by an independent pay review body which makes a recommendation to a minister.

The minister is not obliged to follow the recommendation but in practice they normally do. A less generous offer than the recommendation is a recipe for industrial action.

If a recommendation of 5.5% has been made for health service workers in England it is likely that a similar recommendation will be made for Northern Ireland.

Didn’t public sector workers just get a pay rise?

The funding package from the UK government which helped restore devolution included £584m to meet the immediate cost of backdated public sector pay awards.

An independent watchdog, the NI Fiscal Council, said that in practice a further £520m of that package would mostly be "swallowed up by pay".

However all that money was to settle disputes which had festered in the absence of Stormont ministers.

For example industrial action by teachers had gone on for years and their starting salaries had fallen far behind the rest of the UK.

So that was essentially a backward looking exercise; what is happening now is a more normal annual pay setting process.

The reasons why pay review bodies may favour above inflation deals could include the need to compete with private sector pay increases and the need to rebuild the real value of public sector pay.

Can Stormont afford pay deals?

The NI Fiscal Council said the Department of Finance has told Stormont departments to plan on the basis of 3% pay growth.

However, in a recent dispute about its budget the Department of Health indicated it could not afford any pay rises unless it gets more money.

If central government does find new money for pay deals in England that will release more cash for Stormont.

But departments may still need to find savings to fully fund any pay awards.

The Fiscal Council has also said the Northern Ireland Executive has the option of proposing a policy of pay restraint but acknowledges that would be "unpopular and difficult".