Following comments made by Mr Hancock to the Health Select Committee, London Economics released the following statement:

“When asked today by the Health Select Committee whether the proposed 1% pay increase to Agenda for Change employees was a pay increase or a real-terms pay cut, the Secretary of State Mr Hancock stated that “inflation is below 1% and therefore a proposed 1% pay rise is indeed a pay rise and that’s simply a matter of fact.”

Alongside the Budget Statement, the Office for Budget Responsibility March 2021 Economic and Fiscal Outlook presented an estimate for the Consumer Price Index (CPI) in 2020. This was 0.9%. However, more importantly, the OBR also provided their forecasts for CPI between 2021 and 2025. In 2021, CPI is forecast to be 1.5%, rising further to between 1.8% and 2.0% between 2022 and 2025 (Table 1.1).

When assessing whether the proposed cash pay increase represents a real-terms increase or cut, it is not sensible to compare a proposed cash increase in 2021 with a measure of inflation in 2020. Making the relevant comparison, and based on forecasts from the independent Office for Budget Responsibility, the proposed 1% pay increase in cash terms being offered by the Government to the 1 million employees covered by the Agenda for Change Framework in 2021 represents a real terms reduction of 0.5%.”

Dr Gavan Conlon
Partner, London Economics
[email protected]

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