UK public sector workers face fresh pay restraint as Treasury takes tough stance

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UK public sector workers face fresh pay restraint next year, after the Treasury said it would not raise taxes to fund more generous awards.

The education and health departments said in evidence to independent pay review bodies that anything beyond a 2.8 per cent increase in pay for teachers, NHS staff and doctors would be unaffordable in 2025-26, in the absence of big cuts to other spending. Similar wage guidance will cover prison and police officers, members of the armed forces and senior civil servants.

Trade unions, which have argued for a sustained push to make public sector pay more competitive, reacted angrily to the announcements.

Unison, Britain’s biggest union, said the proposed increase for NHS workers was “barely above the cost of living”.

The pay review bodies are not obliged to follow the government’s steer when they make recommendations to ministers, but the guidance from Whitehall departments sends a clear signal that 2.5mn public sector workers are likely to receive limited wage rises next year.

This would be in sharp contrast to the generous pay increases of 5 to 6 per cent for 2024-25 that were handed out by the Labour government immediately after the July general election.

A 2.8 per cent increase would be just enough to keep pay rising faster than prices, with current forecasts pointing to UK inflation of 2.6 per cent in 2025-26, but it would be below the average 3 per cent wage settlement expected in the private sector.

The Treasury said this year’s wage awards had been enough to bring public sector workers’ pay level with their private sector counterparts — even before factoring in more generous pensions — and that the backdrop of a slowing labour market would make it easier to recruit and retain staff.

Following tax increases announced in the October Budget, departmental spending limits have now been fixed for 2025-26 and “unlike recent years, there will be no additional funding available for pay”, the Treasury said in evidence to the pay review bodies.

Departments would need to cut other spending on frontline services or make further productivity gains if they wanted to make higher pay awards.

Public sector unions — which led a wave of strikes in protest at a pay squeeze under the previous Conservative government — objected to the new wage guidance.

Helga Pile, head of health at Unison, which represents many lower-paid hospital workers, said: “The government has inherited a financial mess from its predecessors, but this is not what NHS workers wanted to hear.

“Improving performance is a key government pledge, but the pay rise proposed is barely above the cost of living.”

Philip Banfield, chair of the ruling council of the British Medical Association, which represents doctors, said the government had failed to grasp “the unresolved issues from two years of industrial action” if it believed a 2.8 per cent increase would be enough.

Professor Nicola Ranger, head of the Royal College of Nursing, said: “The government has today told nursing staff they are worth as little as £2 extra a day, less than the price of a coffee.”

There was also concern that even a modest pay increase for public sector workers would put new strain on departmental budgets.

One health official said hospital bosses increasingly feared that chancellor Rachel Reeves’ planned £22.6bn rise in the day-to-day budget of the NHS over two years would be “swallowed up” by next year’s pay award and would be “higher than the NHS can really afford”. 

The Department for Education said most schools would only be able to cover the proposed 2.8 per cent increase in teachers’ pay if they made other efficiencies.

But Daniel Kebede, general secretary of the National Education Union, said a “major pay correction” was needed to tackle a crisis in teacher recruitment and retention.

“There are no ‘efficiencies’ that can be made without further damaging education . . . This won’t do,” he added.