The 1% public sector pay cap could be lifted for some workers – but only if ministers find the money from “efficiency savings” in their budgets.
Under the latest option being considered by the Treasury, the seven-year wage squeeze could be allowed to end in Government departments that unearth cuts in other areas.
The hardline approach to the controversial issue – only funding pay rises from cuts elsewhere – may spark anger from Labour and the trade unions who have campaigned for a centrally-funded across the board hike for all public servants.
Some in the Treasury are also open to awarding regional pay rates for public sector workers to reflect local labour markets, but realise that unions would fiercely resist an end to national pay bargaining.
Chancellor Philip Hammond is understood to be sticking to his insistence that public sector workers in some parts of the UK are paid more than the private sector despite the long pay freeze introduced by the Cameron government.
Cabinet sources said that there could be an “interesting debate” about lifting the 1% cap in individual departments, as long as savings were found to foot the bill.
The Institute for Fiscal Studies has estimated that every 1% increase in pay would raise the overall wages bill by at least £1.5bn.
But the cost per department is lower and some in the Treasury believe that savings that deliver year-on-year could be used to fund wage rises.
Hammond, who has denied saying that public sector workers are “overpaid”, does however think that their pay runs ahead of counterparts in the private sector.
In Northern Ireland and the North East, businesses have told the Chancellor that they find it difficult to attract staff from public service jobs because of the differential.
Ministers claimed they were “not deaf” to public concern over the issue displayed in the general election, with many voters making clear they wanted nurses, teachers, police and others to get more pay after years of real terms pay cuts due to rising inflation.
The Chancellor has come under huge pressure from individual ministers in recent weeks to lift the pay cap, with Boris Johnson, Michael Gove and Jeremy Hunt among those suggesting they will ask for a new approach.
Hammond, backed by Theresa May and deputy Damian Green, has since then managed to send out a message that the 1% figure is still necessary in getting down the UK’s deficit.
TUC General Secretary Frances O’Grady told HuffPost UK that funding pay rises from further cuts was unacceptable.
“The majority of NHS trusts ended last year in the red. Schools have lost £3 billion since 2015, with £9 billion more to be slashed in this Parliament. And the police have seen a fifth of their real budget disappear,” she said.
“Public services simply can’t take any more cuts. The Chancellor needs to look for new money so that public servants get the pay rise they’ve earned.”
This week, the independent Senior Salaries Review Body stuck to the Government-imposed cap but warned that its ability to attract the best senior civil servants, NHS managers and military chiefs could “deteriorate rapidly” as employees became “frustrated and demotivated”.
First Secretary Green suggested that there could be flexibility for some staff, but only within the one per cent average ceiling.
His remarks were swiftly attacked by the First Division Association, the union that represents senior civil servants in Whitehall. “What should be abundantly clear is that this cannot be achieved within a 1 per cent straitjacket,” said Naomi Cooke, the FDA’s assistant general secretary.
Treasury Chief Secretary Liz Truss insisted in the Commons this week that many nurses got 3% in their pay packets, not just 1%.
Truss had been expected to send out this month the annual ‘remit’ letter on NHS pay due to kick in from April 2018.
She may now delay her letter until later this year but is expected to repeat the 1% cap, though with some ‘wriggle room’ to attract key workers.