Hunt warns public sector wage growth will mean spending cuts

Junior doctors recently went on strike for higher wages. Credit: Guy Smallman/Getty Images

Substantial public sector wage increases will need to be funded by spending cuts in other government departments, the Treasury has warned Cabinet ministers pushing for a significant increase.

Chancellor Jeremy Hunt insists that borrowing cannot be used to finance a significant wage hike because of fears that an increase in public debt will cause inflation.

This means that departments are forced to save on already tight budgets if workers are given much higher salaries than last year.

Rishi Sunak stressed the need to cap public sector wages in the face of soaring inflation, insisting that he would not take any steps that would «prolong the situation.»

Expected that by the end of next week the government will announce its decision on how much to pay millions of public sector workers this year.

Teachers, medical consultants, paramedics, prison officers, police officers and among those who will have their salaries decided are soldiers.

Jeremy Hunt spoke about mortgages on The Martin Lewis Money Show Live on ITV on Tuesday. Credit: Zara Farrar/HM Treasury

Earlier this year, the Treasury suggested a 3.5% hike would be appropriate for some public sector workers and warned that anything above 5% would lead to inflation.

This has created tension at the top of the government: cabinet ministers representing the workers in question insist on accepting the proposals, but numbers 10 and 11 resist.

Spending levels for each government department through 2024 have changed. already announced. These tight budgets are already being drained by the impact of rising prices.

The government is trying to find a balance to ensure that public sector workers are treated fairly, with inflation at 8.7%, without causing unintended price increases.

Mr. Sunak said halving inflation this year is his number one priority in office, but slowing price increases has proven harder than he had hoped.

Average wages jumped 7.3% in the three months before New official statistics released on Tuesday showed May heightened worries about a wage and price spiral compared to last year.

Rishi Sunak with Italian Prime Minister Giorgia Meloni at the NATO summit in Lithuania. Photo: Ludovic Marin/Pool via Reuters

The International Monetary Fund has warned that Mr Sunak risks breaking his promise to halve inflation, forcing the Bank of England to maintain high interest rates longer.

He also warned the prime minister and chancellor that they would not be able to afford cut taxes if the economy is stronger than previously thought.

The UK Annual Economic Assessment has predicted that inflation will fall to «around 5.25%» by the end of 2023.< /p>

G- Well, Sunak was questioned about his approach to public sector pay while answering questions from reporters during a trip to the NATO summit in Vilnius, Lithuania.

He said: “I am incredibly grateful to our public sector workers. for the fantastic work they are doing. I'm glad we found an agreement with a million NHS workers, half a dozen unions and the NHS staff council.

“But we found a way. We found a fair pay agreement, rewarded them for their hard work, and honored them for it.

“But it was also available to the taxpayer. This is also important because the government also has obligations to them. And he should be responsible.”

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He added: “You talked about inflation and the economic context. The cost of government borrowing is rising not only for the UK, but for governments around the world.

“In this economic context, government must act responsibly. I don't want to do anything that could prolong the situation or make it worse. We're going through it now, that's how we'll be guided.»

It comes after the Office for National Statistics (ONS) said public sector wage growth hit its highest level in 22 years in three years. months to May, with a 5.8% increase.

According to the ONS, wages in the private sector grew by 7.7% in the three months to May, the fastest pace on record for outside the pandemic.

The UK employment rate rose slightly in the three months to May, reaching 76%. Unemployment rose 0.2 percentage points to 4%.

In a sign that higher interest rates and economic uncertainty have begun to affect the labor market, the number of vacancies fell to 1,034,000 for 12 consecutive months.

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Mr. Sunak also downplayed the prospect of tax cuts coming soon. The next UK government financial report will not be released until autumn.

He said: “The chancellor and I are completely united in our desire to reduce taxes for the people. Of course, we are — we are conservatives. He said it, I said it, and we want people to be able to store more of their own money.

“But the number one priority right now is to lower inflation and be responsible for government borrowing. . This is absolutely the highest economic priority, and it is more important than anything else.

“So, given the context we are facing, we are going to make sure that we bring inflation down and not something to make things worse or prolong her longer. And this is our general approach.”