NHS pay: what’s the deal?

“Delighted to confirm pay rise of between 6.5 and 29% for NHS staff who have worked so hard over a tough Winter, in a £4.2bn deal. Rarely has a pay rise been more deserved.”

Jeremy Hunt, 21 March 2018

The government and the NHS Staff Council have proposed a new pay deal for some NHS staff. It affects all NHS staff in England who are under what are called ‘Agenda for Change’ contracts. These contracts cover “all staff except doctors, dentists and very senior managers”. The offer is yet to be agreed to by NHS staff.

If the deal goes ahead, most NHS staff will see their pay rise within the range the government is quoting, and that will take place over the next three years.

But there’s a lot more to understand about the figures. We’ve summarised the key points:

• Most affected staff stand to gain more from the new pay deal, compared to what they would get in pay rises in the current system. No affected staff will earn less under the proposed deal.
• The rises factor in both increases in basic salaries, and expected individual pay progression over time. So the direct increases to salaries are less than the pay rises being quoted by the government. The overall rise ends up bigger because people will progress through their pay points.
• On this basis, NHS staff would have got pay rises anyway without this deal, not least because some staff will continue to progress up their pay points if they’re not already at the top.
• The overall pay rises under the new deal vary a lot for different staff. The 6.5% rise would apply to around half of staff affected by the deal—those who are already at the top of their pay grades. Staff at the bottom of their pay grades will tend to see the highest rises, with the maximum rise of 29% applying to staff currently earning just under £32,000 in Band 7.
• For some higher-paid staff, the increase will be lower, the lowest total rise is 4.5% for those earning over £100,000.
• Pay rises of 6.5% are likely to be similar to the total rate of inflation over the next three years, meaning real earnings for around half of staff will stay roughly the same.
• Pay progression happens at a different pace under the new system. Most staff will reach their maximum salary in fewer years, but with fewer pay rises in between.

How does NHS pay work?

To fully understand the impact of the new deal, it helps to first understand how the NHS pay structure works at the moment.

Different jobs are assigned to different pay “bands”. Band 1 is the lowest and Band 9 is the highest. Within these pay bands there are a range of “pay points”, with each assigned a different salary. Someone starting a role will normally begin on the lowest pay point in their job band, before rising by one pay point per year until they reach the top point (which takes 6 to 9 years in most cases). On top of this, the salary at each pay point may rise by up to 1% a year.

So, pay rises for NHS staff currently happen yearly, and come from two sources: increases in basic salaries each year, as well as expected pay progression. The new pay deal will change the rate of increase in basic salary, and also restructure pay progression.

What’s the new deal worth? Basic salaries

When Mr Hunt talks about “a pay rise of 6.5 to 29%”, he’s talking about a combination of increases in basic salary, and assumed pay progression. It’s what staff will make in 2020/21, compared to what they make now.

6.5% is the salary increase that most staff who are already at the top pay point of their band (and therefore are not subject to pay progression) will get. This is roughly half of current staff. This pay rise amounts to 3% in 2018/19, 1.7% in 2019/20, and 1.7% again in 2020/21. They will also get an additional lump sum worth 1.1% in 2019/20.

This applies to all job bands except the two highest, where the top pay point salary will increase by 5.4% (Band 8D) and 4.5% (Band 9) over the next three years.

Starting salaries for each of the job bands will rise by between 13% and 23% over the next three years. So, for instance, someone starting a job in Band 4 or 5 in 2020/21 will get paid 13% more than if they started that same job in 2017/18.

Factoring in pay progression

For staff who are not already at the top pay point, you need to also factor in pay progression. This is a bit more complicated, because the new deal will change how pay progression works. Instead of staff moving up one pay point a year, there will only be a starting salary and a top salary, with one intermediary pay point in some bands.

However, staff in Bands 2-7 will reach the top pay point in fewer years, and for the job bands that have an intermediary pay point (reached after two years of experience), the salary jump will be higher than it would be after two years in the current pay structure.

Factoring in pay progression and increases in basic salary, 29% is the biggest possible increase in pay for someone over three years—it applies to someone currently on the starting salary in Band 7.

The NHS Staff Council has a table which tells you the “pay journey” for a member of staff depending on their current job band and pay point. There is a lot of variation in pay journeys over the next three years. In general, it is staff who are currently on the lowest pay point within a band who will see the biggest increases in salary on their “pay journeys”.

The new deal includes an appraisal process, which staff must complete in order to progress to their next pay point. The Royal College of Nursing points out that there are also annual appraisals under the current system, and that currently staff are “almost never” prevented from progression to the next pay point.

How does this compare to now?

Even without the new pay deal, NHS staff would expect to get a pay rise over the next three years. Under the current pay structure, basic salaries at each pay point can increase by up to 1% a year, and around half of staff would also expect some pay progression in that time.

For staff who are already at the top pay point (except in Bands 8D and 9), the 6.5% pay increase over three years is roughly twice what they could have expected without the new pay deal.

For staff who expect pay progression in the next three years, there is more variation in how they will be affected by the new deal. The following calculations assume that salaries at all pay points would rise by 1% a year (the maximum possible) if the current system stayed in place.

• For someone currently on the first pay point in Band 2, their salary will rise by an additional 15 percentage points over the next three years under the new deal, compared to under the current system—the highest net increase for any pay point.
• For most staff, the net gain from the new deal will be under 10 percentage points.
• For staff already on the four highest pay points within a band, the net gain will be under 5 percentage points.
• There are a few instances in which staff with larger salaries will see the same pay rise under the new deal as they would get under the current system.

These salary forecasts only cover the next three years, but for some staff the biggest difference will only be felt after five years—when they jump to the maximum pay point, earlier than they would have on the old pay system. We don’t have the salary data for five years ahead, so we can’t do any calculations on how much the new pay deal will be worth to employees that far ahead.

Starting salaries will increase by more under the new deal—rising by between 13% and 23% over the next three years, compared to a maximum of 1% a year without the new pay deal. This will affect the salaries of people who join the NHS in the coming years.

The inflation factor

When we compare the pay deal to expected inflation, around half of staff—those expecting a 6.5% pay increase—will see their earnings stay roughly the same in real terms over the next three years.

The Institute for Fiscal Studies (IFS) expects inflation over the next three years to be 6.2% in total, based on the consumer price index forecasts provided by the Office for Budget Responsibility (OBR).

Less experienced staff, who can expect pay progression as well as salary increases, can expect above-inflation pay increases.

What about the rest of the UK?

This deal is for NHS England only, and the Treasury has allocated an estimated £4.2 billion to pay for it.

However, should the deal be accepted and the spending implemented, then each of the other UK countries will receive an equivalent sum. This is based on the Barnett Formula, which aims to ensure that public spending is equally distributed across England, Wales, Scotland, and Northern Ireland in terms of population size.

The NHS Staff Council says that Scotland, Wales and Northern Ireland would then be able to hold discussions about “whether, and how, the content of this agreement [in England] is implemented” in their respective countries.