Rishi Sunak is preparing to impose a pay cap on 5 million public sector workers as he seeks to rebuild the public finances, according to reports.
The Chancellor will use next week’s spending review will limit pay rises in the public sector to at or below inflation, the Daily Mail reported.
Only frontline NHS doctors and nurses will be exempt from the cap in recognition of their work during the coronavirus pandemic, the paper said.
However teachers, police, members of the armed forces as well as NHS managers will all be affected.
The move is likely to be met with fury by public sector unions who say their members bore the brunt of Conservative austerity cuts following the global financial crisis.
The Chancellor is already under fire over widespread reports he is preparing to set aside the commitment to spend 0.7% of national income on overseas aid as he looks for savings.
The Treasury would not comment on the reports ahead of the Chancellor’s statement on Wednesday.
However, launching the spending review in July, Mr Sunak warned of the need for “restraint” in future public sector pay settlements.
He said awards made in the review period would have to take account of the “wider economic context”.
The Chancellor also stressed the need for “fairness” – pointing out that while public sector pay was rising, wages in the private sector had fallen back during the coronavirus pandemic.
That argument was backed by a new report by the Centre for Policy Studies (CPS) which said private sector workers had suffered far more from the economic impact of the disease.
The centre-ring think tank said measures were needed to ensure the labour market was not unfairly weighted towards the public sector.
It said that a three-year pay freeze across the public sector could save up to £23 billion, helping to plug the hole in the public finances opened up by the pandemic.
If the NHS was excluded, the CPS said that it could still save £15.3 billion over the three years.
Alternatively, it said that an annual 1% pay cap would save £11.7 billion over the period – or £7.7 billion if it did not apply to healthcare workers.
CPS director Robert Colvile said: “The economic impact of the Covid-19 pandemic has been severe but the pain has not been shared equally.
“Healthcare workers aside, it is difficult to justify generous pay rises in the public sector when private sector wages are actually falling.
“At the same time, there is a need to control public spending and reduce the structural deficit which the pandemic is likely to have opened up.”
The Unite trade union which said it appeared the CPS was being used as an “outrider” ahead of Mr Sunak’s statement next week.
Assistant general secretary Gail Cartmail said: “The CPS analysis is insulting to those public sector workers that have underpinned the fabric of society during this continuing pandemic.
“In the spring, the Prime Minister was praising NHS staff for saving his life.
“Now, in the autumn, he needs to ensure that his Chancellor turns those warm words into hard cash for those that ensure the efficient running of the NHS, schools and colleges, and the myriad of services provided on a daily basis by local councils.”
Unison general secretary Dave Prentis said a new pay cap would be a “cruel body blow” to NHS staff not on the frontline.
“Key workers across all public services remain at the heart of the fight against Covid,” he said.
“The Government must do what’s right next week and announce the wage rise all staff have more than earned.
“Anything less risks destroying morale when the entire country is counting on them.”