The Treasury is hoping to hold public sector trade unions to a consumer-inflation-linked pay increase as part of an effort to rebalance public spending. Wages and salaries of public servants having been growing at rates higher than inflation and consumed 35% of expenditure in 2017, up from 32.9% 10 years earlier. The growing share of the budget consumed by wages has increasingly tilted government spending towards consumption and away from investment spending, which is needed to promote growth, and has crowded out other spending. The budget assumes that wages will grow by 7.3% a year. A rule of thumb has been that other dimensions of the wage package — including automatic annual pay progression and other perks — add about 2% to the package. The Treasury estimates that consumer price inflation (CPI) will be 5.3% to 5.5% over the next three years.
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