NHS costs and Pay Rises

 In the UK, Junior Doctors are striking over pay.  Is this justified?

The NHS is a vast organisation. According to Wikipedia, it's the 5th largest in the world. Yes THE WORLD.  

The organisation is on a similar scale to all McDonalds employees in the world.  It is reported to employ 1.7 Million people.

Given the UK population is supposed to be  67.7Million, that's a reasonable percentage of the population is employed by the NHS.

As of September 2022, there  are 75,000   junior doctors in the UK - the total  has increased 33%  from 56,000 since September 2015.

Overall the NHS performance since September 2015 has deteriorated with significant increases in waiting times. So the additional 20,000 Junior doctors has not improved performance.

There are 132,000 doctors so approximately 57,000 senior doctors/consultants in addition to 351,000 nurses.  This totals 483,000 clinical staff.  It's not clear what the other 1.2 Million people do. 

A junior doctor straight from University starts on £29,300.  After the first year their salary should increase to £32,300.  After 3 years, a junior doctor salary will be in the range  £40,200 to £43,900.

Now junior doctors are on a final salary pension.  That means they get a guaranteed defined benefit which is inflation linked when they retire.  The NHS employer contribution to the pension is 20.6% of the salary.  If you contrast this with the private sector where employer contribution is 3% - this is a pretty generous contribution.

So let's look a the "graduate" starting salary of £29,300 - in reality the package including the pension contributions is £35,335.  If there was not a final salary pension then the equivalent starting salary for an equivalent package would be £34,275 per year (assuming mandatory 3% employer pension contribution).

A junior doctor gets 27 days paid holiday per year which is generous compared to the private sector.  This rises to 32 days after 5 years service.  In addition they get the 8 days public holiday.

This ignores the £4,000 per annum London weighting doctors will be eligible to claim if they are based in London.

So where does the claim that junior doctors only get paid £14 per hour?  Well it's not really true.

The number is derived for a fresh graduate on £29,300 not receiving London weighting and assume they work 40 hours per week for 52 days per year (ie no time off).  52 x 40 = 2,080 hours.  So £29,300/2080 = £14.09

The reality is you would deduct 216 hours for paid holiday and paid public holiday so only 1,800 hours per year are worked not 2,080.  This equates to £16.28 per hour. After the first year of employment that would increase to £17.94 per hour. 

The £14.09 is little more that a political sound bite.

The median starting salary for graduates in the UK is £24,291 so it looks like the starting salary for junior doctors is in-line with their peers given the extra 2 years of study although their peers will not have such a generous final salary pension or paid leave. 

Now unfortunately the government does not invest these pension contributions - they are paid for out of general taxation. There is no magic ring fenced pot.

Ignoring inflation and  if we assume that the junior doctor is not very ambitious and ends up on a salary of £58,398 and the end of the 10 year junior training stage - stays on the same salary until they retire at age 65, then the size of the contributions in their pension pot is £673,000. Their retirement salary will be £41,712 (40/51ths).  To buy an annuity with similar inflation linked performance would cost you in the region of £2.8 Million.  In reality the NHS final salary pension scheme is massively under funded and it's an extremely generous benefit.  This isnt really factored into the remuneration package for doctors.

The junior doctor's unions are requesting a 35% pay increase which would take the year 1 starting salary to £39,555 and the overall package to £47,703. Pretty generous for someone with zero experience.

The average salary for junior doctors as a whole would be  £44,269  and the average package would be £53,389 per year

So if their demand for a 35% increase was met, the additional cost per year to taxpayers would be an additional £18,686 per doctor - with 75,000 junior doctors this would equate to an additional package cost of  £1.4 Billion per year. If you factor in the final salary pension and fund this correctly, this would equate to a cost of £53,000 per doctor per year so a further £4Billion per year.  This would equate to a 2% increase in taxes. 

Now maybe the government knows the true cost of the pension liability hence is playing hard ball.

It is clear there is a stale mate situation between the government and the junior doctors. 

Personally I think the final salary pension needs to be scrapped. I would suggest that the solution is that the doctors all move to defined contribution pensions.  The government agrees to a 15% salary increase and that the doctors can choose to either take the 20% employer pension contribution as salary ie drop the employer contribution to 3% and take the 17% as salary or flexibly choose how to allocate this.  

In other words package flexibility.

Certainly when the argument that doctors can move to Australia or the private sector to get higher wages this would be true.  They wont get final salary pensions and hence the employer can afford to pay more.  You need to compare like with like.