Millions of public sector workers will be given a wage increase of at least 6%, but government departments have been asked to fund the increase from within existing budgets.
Police officers, junior doctors and teachers in England are among those who stand to benefit after Rishi Sunak accepted all recommendations from independent wage review bodies.
The Treasury Department has ordered a set of measures for government departments to “re-prioritize” their budgets.
The highest wage increase, 7%, will go to police officers, funded in part by the Home Office, which increases the cost of work and study visas.
While millions will be offered at least 6%, others will not. A reduction in hiring civil servants in the Ministry of Defense until 2025 will be used to meet a 5% salary increase for members of the armed forces.
The Immigration Health Surcharge, which is a fee for foreigners to access the NHS, will be paid to foot the bill for the 6% surcharge for junior doctors.
Chancellor of the Exchequer John Glenn said the Education Department budget would be revised to give teachers a 6.5% boost. He said frontline services would be protected and that £525m would be allocated in the current financial year, with a further £900m next year.
Given that senior government figures have raised concerns that public sector salary increases could perpetuate stubbornly high inflation, Glynn stressed in a statement to Parliament on Thursday that awarding wages was “responsible”.
He argued that the amounts would not fuel inflation and reflected the government’s desire to respect wage review bodies and was “because we are proud of our world-class public servants”.
Inflation was 8.7% in May, and core inflation rose 7.1% over the previous 12 months – the highest level in 30 years.
The Treasury Department erred in refusing to borrow more, and Glenn said it was “not fair or affordable” to award double-digit pay bonuses.
Payments have been budgeted at 3.5%, which means the total amount that government departments will need to offset or find efficiencies to cut costs is between £3 billion and £5 billion.
Teaching unions welcomed the pay award. In a joint statement, they said they would put it to the members with a recommendation to accept it and teachers and school leaders would be allowed to call off the strike.
In welcome news for Number 10, leaders of the National Education Federation, the Association of School and College Leaders, the National Association of School Superintendents, and NASUWT said they hope to “resumption of normal relations with government.”
Earlier this week, Jeremy Hunt said delivering “sound money” was the government’s number one focus. In a speech at Mansion House, the chancellor said: “This means taking responsible decisions about public finances, including public sector salaries, because more borrowing is itself inflation.
This means acknowledging that lower inflation puts more money in people’s pockets than any tax cut. This means recognizing that there can be no sustainable growth without eliminating inflation, which stifles investment and undermines consumer confidence.”
Sunak was similarly strict about not adding more to the national debt when asked about the decision on public sector salaries earlier this week.
Speaking at a NATO summit in Lithuania on Wednesday, the prime minister said: “Everyone knows the economic context we’re in and we need to make sure that government decisions, especially when it comes to not borrowing more, are taken responsibly so we don’t” fuel inflation. , makes it worse or lasts longer.”