Rishi Sunak is expected on Thursday to back pay rises of about 6 per cent for public sector workers in 2023-24, but only after ministers were ordered to find significant savings from their Whitehall budgets.
The prime minister said any pay rises for this year had to be responsible and could not be funded by more government borrowing, insisting that such a move would “fuel inflation and make it last for longer”.
Sunak will meet Jeremy Hunt, chancellor, on Thursday amid expectations from fellow ministers that they will agree pay awards of typically about 6 per cent this year for public sector workers proposed by independent review bodies.
But government insiders were adamant that next year’s pay round must be much tighter.
“It’s simplest just to get this done,” said one senior government official. “But we will have to make it clear at the start of next year that this cannot go on. Things are going to be considerably tighter next year.”
Sunak has been grappling with the biggest series of public sector strikes in decades — with NHS workers, teachers and civil servants all demanding higher pay amid the cost of living crisis.
Junior doctors who are members of the British Medical Association begin an unprecedented five day strike on Thursday. Teaching unions are holding strike ballots that might result in widespread closures of schools in the autumn.
Sunak’s aides insisted no final decision on public sector pay would be taken until the prime minister met Hunt, who has spent the past few days haggling with ministers about savings to their Whitehall budgets.
One person close to the talks said ministers had been told to find savings of between £2bn and £3bn, with negotiations continuing on Wednesday. Sunak will review the work after returning from a Nato summit in Vilnius.
Ministers are under Treasury pressure to delay capital spending programmes and, in some cases, increase fees charged for public services so that the pay rises can be afforded without higher borrowing.
If Sunak signs off the plans, ministers will publish independent review body reports and endorse their recommendations on Thursday, hoping that the awards will be generous enough to stave off further strike action.
The reviews cover police — who are expected to be recommended for the highest award, of about 7 per cent — doctors, dentists, prison officers, armed forces and senior public officials.
NHS staff, including nurses and ambulance crews, have already been offered a 5 per cent wage increase for 2023-24, along with a one-off payment for last year.
The government had proposed a 3.5 per cent pay rise to the review bodies for public sector workers, leaving a sizeable funding gap which Sunak and Hunt have insisted must be bridged by savings in departmental budgets.
Sunak, speaking in Vilnius, said: “We’ll be guided by a couple of principles. The first is fairness, fairness for our public sector workers because we want to make sure they’re rewarded fairly for their hard work, but also fairness for taxpayers who ultimately have to foot the bill for pay rises.
“And the other thing we’ll be guided by is responsibility. Everyone knows the economic context we’re in and we need to make sure government decisions, particularly when it comes to not borrowing more, are made responsibly so that we don’t fuel inflation and make it last for longer.”
Consumer price inflation is currently running at 8.7 per cent but Sunak hopes that will fall to about 5 per cent by the end of year.
Paul Johnson, director of the Institute for Fiscal Studies, a think-tank, said departmental savings of £3bn were “not vast” but added: “When savings have been constrained for a long time, it will be difficult.”
He said Sunak did not just have political reasons for endorsing the review body findings, but economic ones: the independent panels take into account issues including recruitment and retention in the public services.
Sunak on Wednesday evening hosted a hog roast for Tory MPs in his Downing Street garden as he tried to raise party morale ahead of three parliamentary by-elections next week.
One Tory official said the outlook in Uxbridge in Greater London, Selby and Ainsty in Yorkshire and Somerton and Frome in Somerset was bleak. “We’re going to lose horribly,” added the official.