Re Increase in Public money
Currently an NHS nurse's pay starts at only £9,735 a year, which if you do the maths, works out at barely above £5 an hour, only a little more than what you might expect to get paid working in McDonald’s – yet nurses are adults and professionals, not school-aged burger flippers. I think this is clearly pretty poor pay. If you want to discuss whether it is possible to be motivated in a job where you get inadequate pay (admittedly working conditions are a big factor as well), I would cite Maslow's Hierarchy of Needs. Simply put, if you can’t afford to put a roof over your head, you won’t get job satisfaction however rewarding the job is.
Re Arguing for Inflation busting pay awards
Well, seeing as you are going to use silly rhetoric like the hyperinflation example, I will make rhetoric myself. Perhaps the cost-push inflation could be balanced by reducing the number of 'fat cat', inflation busting pay rises received by company directors? The argument in favour of the huge salaries enjoyed by such bosses is that if you want quality people, you have to pay. Don't we want skilled nurses and teachers? The point here is not that everyone should get increases above the rate of inflation, just that the NHS employees who have been underpaid for a long time deserve some catching up, especially seeing as the health budget is to double. Another point - as Catchpole pointed out, the job of a trade union isn't to achieve a balance, it's to get the best deal for its workers. And by the way, the hyperinflation in Germany wasn't caused by public sector workers calling for a pay deal 3% above the rate of inflation.
Re We can't afford to buy a house near to where we work
You’re right, making more housing available would be a good solution, but there is another point to be made. Here I will take a position more similar to your own free market views, which is this: Because of supply and demand, salaries are higher in London as the cost of living is higher, so people need more incentive to work there. So, the public sector would be clumsy in responding to this if it didn't pay more in London, as private businesses do. Bear in mind it is particularly important that we have doctors, police, teachers etc. in London as they are essential services. If a company chooses to locate a call centre outside of London, so what?
Re I should be paid more because I help people
You point out that wages are determined by demand and supply. I would point out again that the government isn’t properly responding to demand and supply. Why do you think there is a massive teacher shortage? (50,000 teachers short I think). The same applies to nurses. It is well known the NHS has trouble recruiting and hanging on to staff, so much so that they have to resort to recruiting outside the UK.
Re You don't HAVE to do that job
Well, a doctor doesn't have to be a doctor for his sake, but let's hope for everyone else's sake we have some doctors. No one HAS to do that job, but someone has to, and they should receive adequate pay.