Public sector workers could face below-inflation pay increases

Millions of public sector workers could face below-inflation increases in their pay despite Rishi Sunak confirming the end of the pay freeze in his Budget on Wednesday.

The Chancellor told MPs that more than five million public workers including nurses, teachers and service personnel would see their average pay increase from April in “broad parity with the private sector”.

Private sector employers are planning to give their staff an average of 2.9 per cent next year after signs of strength in the labour market following the turmoil of the global pandemic, according to a survey of 725 British firms.

However, while inflation is 2.3 per cent this year, it is expected to rise to four per cent next year, according to the Office for Budget Responsibility, leaving a potential shortfall for millions of public sector workers.

The Chancellor also maintained that any pay increases would have to continue to be affordable, with the money to be found from departmental budgets.

Announcing a real-terms rise for every government department, Mr Sunak said departmental spending in this parliament would rise by £150 billion, or 3.8 per cent a year in real terms, in the “largest increase this century”.

How that translates into potential pay increases will be initially determined by the independent pay review bodies to which each department will submit evidence on what it believes it can afford.

Those bodies will report back in the spring and at that point the Chancellor will decide whether to accept or modify their recommendations. Pay rises will be backdated to April.

Fears that they may not cover the cost of rising inflation were fuelled by Paul Scully, the business minister. When asked to confirm they would meet inflation, he said any rises would depend on public finances.

“The Chancellor is keen to give people a rise,” he said. “They [the pay review bodies] will then take that into account as they look to what should be an appropriate rise for the public sector, given the public finances. I can’t preempt what they are going to do. We will see where we are next April when the review bodies have reported.”

Unions complained at a lack of detail in the budget documents. Gary Smith, the GMB general secretary, said: “Saying you will lift the pay freeze that has ground down public sector workers is meaningless if we don't even know if wages will increase above inflation.”