Treasury officials have signalled a tough stance on public sector pay for 2025-26, indicating that wage increases will be capped at 2.8% for NHS staff and teachers. The move comes as Whitehall departments warn that higher increases would strain already tight budgets.
The directive, affecting approximately 2.5 million public sector workers, marks a significant shift from the generous 5-6% pay rises implemented by the Labour government following their July electoral victory. Education and health departments have submitted evidence to independent pay review bodies, emphasising that exceeding the 2.8% threshold would necessitate substantial cuts in other areas.
Trade unions have responded with strong criticism to the announcement. Unison, Britain’s largest union, characterised the proposed NHS worker increase as “barely above the cost of living.” The British Medical Association has expressed concerns about unresolved issues from previous industrial actions, while the Royal College of Nursing equated the raise to “less than the price of a coffee” per day.
The Treasury’s position reflects their assessment that recent pay awards have achieved parity between public and private sector compensation, particularly when considering pension benefits. With inflation forecasted at 2.6% for 2025-26, the proposed increase would maintain real wage growth, albeit below the private sector’s expected 3% average settlement.
Hospital administrators have voiced concerns that Rachel Reeves’ planned £22.6 billion increase in NHS day-to-day budget could be consumed by wage commitments. The Department for Education has indicated that schools would need to implement additional efficiency measures to accommodate even the modest 2.8% increase in teachers’ pay.
The government’s stance represents a delicate balance between fiscal responsibility and maintaining public service quality. With departmental spending limits now fixed for 2025-26 and no additional funding available for pay increases, the stage appears set for potential tensions between the government and public sector unions in the coming months.
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