Rishi Sunak says public sector pay rises will fuel inflation. Economists say they won’t
Rishi Sunak has said he cannot raise public sector wages because doing so will fuel inflation.
The government has warned of a “wage-price spiral”, also known as wage-push inflation, in which prices rise (inflation) due to higher wages which, in turn, increase prices in a perpetual loop.
As more workers go on strike this month demanding their pay matches or beats inflation – which stands at 10.7% – two economics experts have told Sky News the government is not correct in its assessment.
They agreed increasing public sector wages would not push up inflation.
Dr Ethan Ilzetzki
Associate professor of economics, London School of Economics
“It’s very wrong-minded of the government to approach it in this way,” Dr Ilzetzki said.
“Private sector wages do feed into inflation – wages increase, costs increase and they want to pass that on to the consumer.
“So private sector wages are more likely to lead to inflation or a wage-price spiral but there’s no similar way that the public sector could cause inflation.
“The caveat is, of course, an increase in public expenditure could lead to inflation and public wages are one way public expenditure is increased, but the government could increase wages and cut other parts of the budget.”
He said the conflict between the government and public sector workers is essentially political and about “who burdens the cost”.
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The Bank of England’s job is to keep inflation close to 2%, he added, so “the first order of business is to bring inflation down” to that figure.
“The Bank of England always has the ability to bring inflation down, even if its caused by global energy prices or geopolitical conflict,” Dr Ilzetzki said.
“That does have a cost: the further slowing down of the economy which has already plummeted, so the Bank of England does have an unenviable task but it has a very clear mandate to keep prices at a constant level.”
He added that the friction between the unions and the government is “about taking responsibility for economic problems” that politicians “need to address”.
Professor Alex Bryson
Professor of quantitative social science, University College London
“The government’s concern with wage-push inflation is misconceived as they’re missing much of the bigger picture: unemployment and shrinking of the size of the economy,” Prof Bryson said.
“Past periods of recession inflation were often followed by deflation – this happened in 2008.
“But this episode is different, the chief reason [for inflation rising] was not wage-push but COVID-induced restraints, which hike prices but will die back over time, as well as energy prices and ongoing uncertainty over Ukraine.”
Professor Alex Bryson said the government is missing the bigger picture
He said unemployment rates have been low for a long time and wages have been relatively stagnant, which has meant workers’ arguing power is “not so great”.
“There are more benefits for the government paying public sector workers more than not, it’s conceivable they could benefit from an increased low turnover, which would cost the public less than it does now,” he said.
“Even a substantial pay rise will not see public sector workers catching up on the pay gap with the private sector that has been widening since 2010.”
Prof Bryson said he thinks the UK is already in recession and it will be “long and deep”.
“We’re seeing a deeper recession than is currently identified, we saw that before with the great recession of 2008 so you would expect that would normally mean a spike in unemployment,” he said.
“Surveys in recent months show an increased proportion of indexes in the labour market saying unemployment will rise in the next 12 months.
“That will mean GDP is lower than it currently is which will mean inflation will start to fall.”
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He added that at the moment, the government should be more worried about high non-employment – those not in work and not seeking work – and underemployment – those who want to work more hours but do not have the opportunity to.
“Their focus should be on reducing the rate at which real wages are falling,” Prof Bryson said.
“It’s not clear to me whether the government will be able to hold their line on wage-push inflation, especially if the unions are holding out as they seem to be.”
Elon Musk could be on track for a $1trn pay packet.
Tesla shareholders have approved the whopping financial package for the CEO – who’s already worth an estimated $491bn – if he hits a series of ambitious targets over the next 10 years.
But that $1trn figure (or £761,910,000,000) – which is both one thousand billion and one million million – is almost impossible to imagine for most people.
Even so, we have drilled down into the numbers and examined what you can do with a trillion US dollars – and it turns out, quite a lot.
Show me the money
Laid end to end, a trillion one-dollar bills would cover a distance of approximately 156 billion metres.
That could wrap around the equator 3,890 times, easily reach the sun from Earth (around 149.6 million km) or loop from Earth to the moon 405 times.
That many one-dollar notes could cover a massive area (roughly 10,339 km squared), meaning you could blanket nearly all of Lebanon or Jamaica in bills.
Spend it on sport
You could splash out on virtually all of the world’s major sporting leagues.
The clubs which make up the Premier League are relatively cheap ($30bn), and even when snapping up the UEFA Champions League clubs and the big five top divisions of Spain, Italy, Germany, and France, there’s still $858bn left in the kitty.
The four major US sports leagues for ice hockey, baseball, basketball, and American football (NFL, NBA, MLB and NHL) have a rough valuation of $544bn, according to Sportico.
But then add the IPL cricket league ($120bn) and F1 ($23.1bn) and Musk still has change from an estimated total spend of $829.7bn.
Elon Musk is in the money if he hits targets set by Tesla’s shareholders. File pic: AP
Take over Tesla’s rivals
He could buy up the top 15 largest publicly traded automakers (excluding Tesla) by market capitalisation.
They would include firms like Japan’s Toyota ($275bn), Chinese automaker BYD ($120bn), and luxury brands like Ferrari ($81bn) and Mercedes-Benz ($62bn), as well as BMW ($52bn), Volkswagen ($50bn) and Ford ($48bn).
But there would still be a little change left over; the total bill would be an eye-watering $992bn.
Buy up San Diego
He could buy up every single residential property in San Diego County – valued at a total of $1trn. Seattle is just slightly out of reach at $1.1trn, according to recent data from real estate firm Zillow.
But if he wanted to buy big – there is always Tennessee. The total value of homes in the US state is estimated at $957bn. Or there is Maryland, which at $1.01trn could be bought if he can find a little more cash behind the sofa.
Sadly, he would struggle to scoop up London’s entire housing stock, which in February was valued at just under £2trn ($2.53trn), according to agents Savills.
Cities like New York ($4.6trn) and Los Angeles ($3.9trn) are also not within his budget, hosting America’s most expensive residential markets.
Do something charitable?
There is always the possibility Musk could follow in the footsteps of Microsoft founder Bill Gates, who intends to give away 99% of his vast fortune over the next 20 years.
He could give every single man, woman, and child in the US a share of his cash pile. They would receive approximately $2,917.32 (£2,223.29), based on a population estimate of 342.7 million.
Although it would be roughly $14,348.79 (£10,935.20) for every person (roughly 69.6 million) in the UK.
If he wanted to give the entire globe an early Christmas present, then based on the rough world population estimate of 8.2 billion, everyone would receive $121.80 (£92.87).
Pay off the credit card
With $1trn, he could instantly rewrite history and erase debt interest payments and the government debt from dozens of the world’s sovereign nations.
Or Musk could wipe out the debts of Singapore ($1trn) or South Korea ($0.99trn) in one go, according to figures from the International Monetary Fund’s latest World Economic Outlook (Oct 2025).
But when it comes to the biggest debt-laden countries, $1trn would not even touch the sides.
The US has $38.3trn of government debt (just over one third of the total global debt pile) while the UK has a modest $4.1trn.
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