Public sector must temper pay demands, says Treasury

LARGE public sector pay rises this year are unaffordable and risk damaging the delivery of front-line services, the Treasury has warned.

It said two years of “above affordability” pay awards had already started eating into departmental budgets, according to a submission to the pay review bodies (PRB).

It warned that spending plans at the Ministry of Defence, which is currently at the centre of a funding row, had to be cut back to afford last year’s pay rises, with further “trade-offs” likely if those demands were repeated.

Millions of public sector workers were handed a pay rise of at least 6pc last year after Rishi Sunak decided to accept PRB recommendations.

However, the Treasury said this had resulted in the amount paid to civil servants and other public sector workers accounting for more than half of all day-to-day spending budgets.

Eight independent pay review bodies advise the Government each year on pay rises for doctors, nurses, teachers and a whole swathe of other public sector workers.

The Treasury said soaring inflation meant departments were already set to spend £10bn more on pay than planned compared to when budgets were first outlined in 2021. “The pressures outlined above mean that departments are already having to reprioritise and find efficiencies to enable funding to be available for pay awards this year,” the Treasury said.

It added: “All else equal, increased spending on pay either reduces available room in budgets for non-pay expenditure, including funding for front-line services provision, or necessitates further borrowing which, as above, would increase pressures on interest rates at a time when they have reached their highest level in 15 years.

“It is therefore vital that the PRBS consider the historic nature of the pay awards delivered over 2022-23 and 2023-24 and the Government’s affordability position when forming their recommendations.”

The evidence has been submitted less than a week before Chancellor Jeremy Hunt delivers his final Budget before the election.

Mr Hunt is considering a further squeeze on Whitehall departments to fund tax cuts.

The Treasury also highlighted that public sector pensions remained among the most generous in the UK, and should be taken into account in recommendations. The PRBS are expected to make their recommendations to Downing Street in the coming months.