Rishi Sunak has called for an end to public sector strikes as he announced millions of workers will get pay rises of 6 per cent.
Teachers’ unions immediately announced they would call off industrial action and recommend their members accept the proposal.
But the doctors’ union the BMA said that far from putting an end to ongoing strikes “this offer is exactly why so many doctors are feeling they have no option but to take industrial action”.
As the longest walkout in NHS history got underway, the prime minister told all unions his offer was final and implored doctors to “do the right thing and know when to say yes”.
But question marks remain over how the increases will be funded as the government said it would not borrow more money to fund the over £2 billion wage uplifts.
Ben Zaranko, senior research economist at the respected Institute for Fiscal Studies think tank, warned that without borrowing or tax rises the wage increases would eventually require cuts to public service budgets.
Dr Mary Bousted, the joint general secretary of the largest teaching union, the National Education Union (NEU), said minister had given her union guarantees “that this extra funding will not impact on school frontline services”.
She also credited strike action with delivering what she said was the “biggest.,.. (pay rise) teachers have received since 2000”.
Speaking at a press conference on Thursday Mr Sunak confirmed on Thursday that he would accept the recommendations of all the government’s independent pay review bodies, with teachers offered a 6.5 per cent rise and junior doctors 6 per cent.
Other rises include 7 per cent rise for police and prison officers, 6 per cent for dentists and NHS consultants, and 5 per cent for members of the armed forces.
The prime minister said more than £1 billion of the cash needed would be found by “significantly” raising fees for migrants’ visa applications and access to the NHS.
But roughly the same amount will be found through “reprioritisation”, raising the prospect of cuts elsewhere, and from underspends in government departments. However, it is understood that these will be cross-government. This will remove pressure on, say, the education department to find the money to fully fund the teachers’ pay rise.
The prime minister admitted that his announcement would “cost all of you as taxpayers more than we had budgeted for.”
“That’s why the decision has been difficult, and why it has taken time to decide the right course of action. I can confirm today that we are accepting the headline recommendations of the pay review bodies in full, but we will not fund them by borrowing more or increasing your taxes.”
Ministers are struggling to fight persistent high inflation at the same time as bring to an end to industrial action by the likes of doctors.
Earlier the chancellor Jeremy Hunt said the government had had to take “difficult but responsible” decisions on wages for millions of workers.
Treasury minister John Glen told the Commons the pay award for teachers “will be fully funded”. “In order to achieve this we are reprioritising within the Department for Education’s existing budget to deliver this additional funding to schools while protecting frontline services,” he said.
“The action we have taken today is the most responsible way forward, striking a balance between the demands of our public sector workers and the needs of our country and economy.”
But unions said the decision to fund some of the rises by drawing on departmental budgets was the wrong approach.
Unite union general secretary Sharon Graham said Unions said the decision to accept the pay recommendations without fully funding them would put “departments between a rock and hard place”.
“They now have to choose between paying workers a half-decent salary or cutting services in already underfunded public services,” she said.
“If the Government wanted to, it could well afford to pay public sector workers properly, while maintaining and indeed improving funding for schools and hospitals. It could start by looking at the money made by profiteering companies that have been driving up inflation.”
Mike Clancy, general secretary of senior civil service union Prospect, said: “For a Prime Minister and Chancellor who came into office promising economic stability, the chaotic handling of this process will inspire little confidence in workers worried about their futures during the worst cost-of-living crisis in a generation.
“The fact that they are taking a knife to public services to pay for these pay rises signals that they have learned nothing from the austerity years.”
Mr Sunak and Mr Hunt met earlier to decide whether or not to accept the recommendations of independent pay bodies for a variety of professions.
The Treasury has said it will not increase government borrowing to pay for wage rises. That means any extra cash may have to come from existing departmental budgets, potentially meaning cuts to services.
Experts have warned schools and the NHS could face cuts worth billions of pounds as a result.
Mr Sunak has promised to halve inflation – to 5 per cent – this year. But the current level of CPI inflation is running at 8.7 per cent, amid fears pay increases are fuelling a wage-price spiral.
Mr Hunt told MPs on Thursday that “it is important to deliver on the Prime Minister’s priority to get debt falling and to control borrowing to avoid adding inflationary pressures and risk prolonging higher inflation”.
“That means taking difficult but responsible decisions on the public finances,
Including public sector pay, because more borrowing is itself inflationary.”
Mr Zaranko said: “At this point, we can’t say with any certainty where the funding for higher pay rises will come from, although Rishi Sunak has made clear that it will not come from increased borrowing or higher taxes. In the short-term, some could come from under-spends in other parts of the budget, but that’s not a permanent solution.”
He said extra revenue through higher charges for visa applications and for non-British nationals using the NHS would be “unlikely to cover all of the additional cost. Without rises in borrowing or tax, today’s announcements will eventually require either a smaller public sector workforce, or cuts to some other aspect of public service budgets. Some public services might be able to squeeze savings out of other non-staffing areas. Another, somewhat short-sighted, option would be to raid capital budgets to meet the costs of a higher paybill. It may also be that extra funding will be forthcoming in the autumn statement. We’ll have to wait and see.”
Official figures released just hours before the announcement also showed the UK economy contracted in May.
The eight pay review bodies cover around 45 per cent of public sector workers, including members of the armed forces, NHS staff, prison officers, police officers, teachers and senior civil servants.
While they focus on salaries, they can also advise on other aspects of pay and conditions, including pensions, overtime arrangements, working hours and annual leave.
Each are made up of between six and eight people, including sector experts, HR experts, economists and former trade unionists.
