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Rishi Sunak has hinted he will ignore recommendations for public sector pay rises, saying workers “need to recognise the economic context we are in”.

Reports surfaced over the weekend that the prime minister planned to block upcoming proposals from public sector pay bodies in an attempt to tackle soaring inflation in the country.

And health minister Helen Whately refused to commit to the uplift during an interview with Sky News on Monday morning.

Unions and opposition parties have hit out at the rumoured decision, saying inflation was not being driven by the wages of nurses and teachers, but by the economic decisions taken by the Conservatives over their 13 years in power.

Politics live: ‘Seriously?’ – Labour responds to lack of commitment on pay rises

Last week, the Office for National Statistics confirmed inflation was stuck at 8.7% and the Bank of England raised interest rates to 5% – a 15-year high.

Asked by broadcasters today whether public sector pay was a major driver of that inflation, Mr Sunak said: “Government borrowing is something that would make inflation worse, so the government has to make priorities and decisions about where best to target our resources.

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“And that’s why when it comes to public sector pay, we need to be fair, but we need to be responsible as well.”

Pay review bodies or PRBs take evidence from across sectors like the NHS and education each year, as well as submissions from government, before saying what wage rises should be introduced for the following 12 months.

Amid anger from unions about the figures failing to match inflation last year, Health Secretary Steve Barclay insisted it was right for ministers to “continue to defer to that process to ensure decisions balance the needs of staff and the wider economy”.

The PRBs’ recommendations are expected to be published next month, alongside formal pay offers, with reports claiming they could be around 6% for the health service and 6.5% for teachers.

But while being questioned on public sector pay, Mr Sunak said: “It is important that we don’t make the inflation situation worse and it is important we prioritise the things that are right.

“I am making the decisions that are right for the long term and that is what I am going to continue doing.”

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TUC general secretary Paul Nowak accused the government of “playing politics with working people’s incomes”, adding: “It risks permanent economic harm – and will undoubtedly damage recruitment and retention of staff in our vital public services.

“Instead of blaming workers who can’t afford to put food on the table or petrol in their cars to get to work, ministers should focus on a credible plan for sustainable growth and rising living standards.”

The joint general secretary of the National Education Union, Kevin Courtney, also claimed Mr Sunak was “laying the groundwork for a further real-terms pay cut and one that flies in the face of the recommendations of the pay review body”, demanding the reviews be published as soon as possible.

Labour’s shadow health secretary, Wes Streeting, did not commit to his party accepting the recommendations were they to win power at the next election, but he did say he wanted PRBs “back up and running with the full confidence of everyone involved”.

He added: “It is not working people that have driven our economy off the cliff, it is the Conservative Party. We are still paying through the nose for that disastrous mini-budget that all of those Conservative MPs cheered on.

“People are paying through the nose on their mortgages, paying through the nose with their bills going up and their weekly shop, paying through the nose with rising energy bills, and Britain is an outlier when you look at other economies.

“That’s why we need a serious plan to get growth back into the economy.”

Government pay position offers Labour opportunity and challenge


Tamara Cohen

Tamara Cohen

Political correspondent

@tamcohen

The government’s wavering position on NHS pay presents Labour with both an opportunity and a challenge.

On the plus side, they can point to the fact the position of ministers seems at odds with what they were saying back in December.

Then, the government argument went that it was not for them to decide how much nurses, teachers, or police officers should be paid because this is determined by independent pay review bodies.

Now, they are suggesting the opposite – with health minister Helen Whately the latest to refuse to commit to following recommendations if the government judges they are not affordable.

Labour’s Emily Thornberry was withering in her interview with Sky News this morning: “I mean, seriously – do they really have a policy at all?”

Highlighting government inconsistency on political issues of this sort is exactly what you would expect an opposition party to do.

But it’s not entirely straightforward for Labour. They know there are questions that follow which could be challenging for the party.

Would they commit, for example, to following all pay review body recommendations in power?

Around half of public sector workers are covered by them (civil servants are not), but they are not binding, although Conservative governments have ignored their recommendations more than Labour did in power.

And given Labour agrees with the government that inflation needs to come down, and agrees with the Bank of England that interest rates needed to rise – how comfortable will they be supporting potentially inflationary public sector pay hikes?

The reports come while strike action by junior doctors over pay and conditions continues, with unions planning a five-day walkout next month.

Calling for pay restoration equating to a 35% rise, the British Medical Association (BMA) said wages had decreased by more than a quarter since 2008 when inflation was taken into account, and many doctors were burnt out from an increasing workload.

But when asked why he wouldn’t pay the profession more, the prime minister hit out at the industrial action and called the BMA’s demands “totally unreasonable”.

Mr Sunak said: “I think everyone can see the economic context we are in, with inflation higher than we’d like it, and it is important in that context that the government makes the right and responsible decisions in things like public sector pay.

“It is very disappointing that junior doctors have taken the decision that they have done. Over half a million people’s treatments have already been disrupted and I don’t think anyone wants to see that carry on – it’s just going to make it harder to bring waiting lists down.”

He added: “And I think people need to recognise the economic context we are in, and I am going to make the decisions that are the right ones for the country.

“That’s not always easy, people may not like that, but those are the right things for everybody, that we get a grip on inflation, and that means the government not excessively borrowing too much money and being responsible with public sector pay settlements.

“That is what I am going to do and I would urge everyone to see that is the right course of action.”

Labour’s Mr Streeting said he understood the “pain junior doctors are feeling in their pockets”, and while pay restoration for doctors could not happen “overnight”, staff understood that – and it was for Mr Sunak to fix it.

“I think the important thing is the prime minister has now got to grip this and get around the negotiating table to negotiate an end to this strike action,” he added. “Because every time we see strikes in the NHS we see delays and cancelled operations.

“The real risk to the NHS now isn’t just that staff walk out for another five days of strike action, but they walk out of the NHS altogether.

“If Rishi Sunak can sit there for an hour negotiating gongs and peerages for Conservative Party donors, supporters and MPs, he can sit around the table for an hour with junior doctors and put patients out of their misery.”

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Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

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Bank chiefs to Reeves: Ditch ring-fencing to boost UK economy

The bosses of four of Britain’s biggest banks are secretly urging the chancellor to ditch the most significant regulatory change imposed after the 2008 financial crisis, warning her its continued imposition is inhibiting UK economic growth.

Sky News has obtained an explosive letter sent this week by the chief executives of HSBC Holdings, Lloyds Banking Group, NatWest Group and Santander UK in which they argue that bank ring-fencing “is not only a drag on banks’ ability to support business and the economy, but is now redundant”.

The CEOs’ letter represents an unprecedented intervention by most of the UK’s major lenders to abolish a reform which cost them billions of pounds to implement and which was designed to make the banking system safer by separating groups’ high street retail operations from their riskier wholesale and investment banking activities.

Their request to Rachel Reeves, the chancellor, to abandon ring-fencing 15 years after it was conceived will be seen as a direct challenge to the government to take drastic action to support the economy during a period when it is forcing economic regulators to scrap red tape.

It will, however, ignite controversy among those who believe that ditching the UK’s most radical post-crisis reform risks exacerbating the consequences of any future banking industry meltdown.

In their letter to the chancellor, the quartet of bank chiefs told Ms Reeves that: “With global economic headwinds, it is crucial that, in support of its Industrial Strategy, the government’s Financial Services Growth and Competitiveness Strategy removes unnecessary constraints on the ability of UK banks to support businesses across the economy and sends the clearest possible signal to investors in the UK of your commitment to reform.

“While we welcomed the recent technical adjustments to the ring-fencing regime, we believe it is now imperative to go further.

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“Removing the ring-fencing regime is, we believe, among the most significant steps the government could take to ensure the prudential framework maximises the banking sector’s ability to support UK businesses and promote economic growth.”

Work on the letter is said to have been led by HSBC, whose new chief executive, Georges Elhedery, is among the signatories.

His counterparts at Lloyds, Charlie Nunn; NatWest’s Paul Thwaite; and Mike Regnier, who runs Santander UK, also signed it.

While Mr Thwaite in particular has been public in questioning the continued need for ring-fencing, the letter – sent on Tuesday – is the first time that such a collective argument has been put so forcefully.

The only notable absentee from the signatories is CS Venkatakrishnan, the Barclays chief executive, although he has publicly said in the past that ring-fencing is not a major financial headache for his bank.

Other industry executives have expressed scepticism about that stance given that ring-fencing’s origination was largely viewed as being an attempt to solve the conundrum posed by Barclays’ vast investment banking operations.

The introduction of ring-fencing forced UK-based lenders with a deposit base of at least £25bn to segregate their retail and investment banking arms, supposedly making them easier to manage in the event that one part of the business faced insolvency.

Banks spent billions of pounds designing and setting up their ring-fenced entities, with separate boards of directors appointed to each division.

More recently, the Treasury has moved to increase the deposit threshold from £25bn to £35bn, amid pressure from a number of faster-growing banks.

Sam Woods, the current chief executive of the main banking regulator, the Prudential Regulation Authority, was involved in formulating proposals published by the Sir John Vickers-led Independent Commission on Banking in 2011.

Legislation to establish ring-fencing was passed in the Financial Services Reform (Banking) Act 2013, and the regime came into effect in 2019.

In addition to ring-fencing, banks were forced to substantially increase the amount and quality of capital they held as a risk buffer, while they were also instructed to create so-called ‘living wills’ in the event that they ran into financial trouble.

The chancellor has repeatedly spoken of the need to regulate for growth rather than risk – a phrase the four banks hope will now persuade her to abandon ring-fencing.

Britain is the only major economy to have adopted such an approach to regulating its banking industry – a fact which the four bank chiefs say is now undermining UK competitiveness.

“Ring-fencing imposes significant and often overlooked costs on businesses, including SMEs, by exposing them to banking constraints not experienced by their international competitors, making it harder for them to scale and compete,” the letter said.

“Lending decisions and pricing are distorted as the considerable liquidity trapped inside the ring-fence can only be used for limited purposes.

“Corporate customers whose financial needs become more complex as they grow larger, more sophisticated, or engage in international trade, are adversely affected given the limits on services ring-fenced banks can provide.

“Removing ring-fencing would eliminate these cliff-edge effects and allow firms to obtain the full suite of products and services from a single bank, reducing administrative costs”.

In recent months, doubts have resurfaced about the commitment of Spanish banking giant Santander to its UK operations amid complaints about the costs of regulation and supervision.

The UK’s fifth-largest high street lender held tentative conversations about a sale to either Barclays or NatWest, although they did not progress to a formal stage.

HSBC, meanwhile, is particularly restless about the impact of ring-fencing on its business, given its sprawling international footprint.

“There has been a material decline in UK wholesale banking since ring-fencing was introduced, to the detriment of British businesses and the perception of the UK as an internationally orientated economy with a global financial centre,” the letter said.

“The regime causes capital inefficiencies and traps liquidity, preventing it from being deployed efficiently across Group entities.”

The four bosses called on Ms Reeves to use this summer’s Mansion House dinner – the City’s annual set-piece event – to deliver “a clear statement of intent…to abolish ring-fencing during this Parliament”.

Doing so, they argued, would “demonstrate the government’s determination to do what it takes to promote growth and send the strongest possible signal to investors of your commitment to the City and to strengthen the UK’s position as a leading international financial centre”.

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Post Office to unveil £1.75bn banking deal with big British lenders

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Post Office to unveil £1.75bn banking deal with big British lenders

The Post Office will next week unveil a £1.75bn deal with dozens of banks which will allow their customers to continue using Britain’s biggest retail network.

Sky News has learnt the next Post Office banking framework will be launched next Wednesday, with an agreement that will deliver an additional £500m to the government-owned company.

Banking industry sources said on Friday the deal would be worth roughly £350m annually to the Post Office – an uplift from the existing £250m-a-year deal, which expires at the end of the year.

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The sources added that in return for the additional payments, the Post Office would make a range of commitments to improving the service it provides to banks’ customers who use its branches.

Banks which participate in the arrangements include Barclays, HSBC, Lloyds Banking Group, NatWest Group and Santander UK.

Under the Banking Framework Agreement, the 30 banks and mutuals’ customers can access the Post Office’s 11,500 branches for a range of services, including depositing and withdrawing cash.

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The service is particularly valuable to those who still rely on physical cash after a decade in which well over 6,000 bank branches have been closed across Britain.

In 2023, more than £10bn worth of cash was withdrawn over the counter and £29bn in cash was deposited over the counter, the Post Office said last year.

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A new, longer-term deal with the banks comes at a critical time for the Post Office, which is trying to secure government funding to bolster the pay of thousands of sub-postmasters.

Reliant on an annual government subsidy, the reputation of the network’s previous management team was left in tatters by the Horizon IT scandal and the wrongful conviction of hundreds of sub-postmasters.

A Post Office spokesperson declined to comment ahead of next week’s announcement.

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Trump trade war: How UK figures show his tariff argument doesn’t add up

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Trump trade war: How UK figures show his tariff argument doesn't add up

As Chancellor Rachel Reeves meets her counterpart, US Treasury secretary Scott Bessent to discuss an “economic agreement” between the two countries, the latest trade figures confirm three realities that ought to shape negotiations.

The first is that the US remains a vital customer for UK businesses, the largest single-nation export market for British goods and the third-largest import partner, critical to the UK automotive industry, already landed with a 25% tariff, and pharmaceuticals, which might yet be.

In 2024 the US was the UK’s largest export market for cars, worth £9bn to companies including Jaguar Land Rover, Bentley and Aston Martin, and accounting for more than 27% of UK automotive exports.

Little wonder the domestic industry fears a heavy and immediate impact on sales and jobs should tariffs remain.

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Chancellor’s trade deal red lines explained

American car exports to the UK by contrast are worth just £1bn, which may explain why the chancellor may be willing to lower the current tariff of 10% to 2.5%.

For UK medicines and pharmaceutical producers meanwhile, the US was a more than £6bn market in 2024. Currently exempt from tariffs, while Mr Trump and his advisors think about how to treat an industry he has long-criticised for high prices, it remains vulnerable.

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The second point is that the US is even more important for the services industry. British exports of consultancy, PR, financial and other professional services to America were worth £131bn last year.

That’s more than double the total value of the goods traded in the same direction, but mercifully services are much harder to hammer with the blunt tool of tariffs, though not immune from regulation and other “non-tariff barriers”.

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How US ports are coping with tariffs

The third point is that, had Donald Trump stuck to his initial rationale for tariffs, UK exporters should not be facing a penny of extra cost for doing business with the US.

The president says he slapped blanket tariffs on every nation bar Russia to “rebalance” the US economy and reverse goods trade ‘deficits’ – in which the US imports more than it exports to a given country.

Read more: Could Trump tariffs tip the world into recession?

That heavily contested argument might apply to Mexico, Canada, China and many other manufacturing nations, but it does not meaningfully apply to Britain.

Figures from the Office for National Statistics show the US ran a small goods trade deficit with the UK in 2024 of £2.2bn, importing £59.3bn of goods against exports of £57.1bn.

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IMF downgrades UK growth forecast

Add in services trade, in which the UK exports more than double what it imports from the US, and the UK’s surplus – and thus the US ‘deficit’ – swells to nearly £78bn.

That might be a problem were it not for the US’ own accounts of the goods and services trade with Britain, which it says actually show a $15bn (£11.8bn) surplus with the UK.

You might think that they cannot both be right, but the ONS disagrees. The disparity is caused by the way the US Bureau of Economic Analysis accounts for services, as well as a range of statistical assumptions.

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“The presence of trade asymmetries does not indicate that either country is inaccurate in their estimation,” the ONS said.

That might be encouraging had Mr Trump not ignored his own arguments and landed the UK, like everyone else in the world, with a blanket 10% tariff on all goods.

Trade agreements are notoriously complex, protracted affairs, which helps explain why after nine years of trying the UK still has not got one with the US, and the Brexit deal it did with the EU against a self-imposed deadline has been proved highly disadvantageous.

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