Rishi Sunak’s pay rise for seven million people…but how WILL we afford it?

More than seven million workers will get a pay rise in tomorrow’s Budget.

Rishi Sunak last night declared it was right to award higher wages to public sector employees because the economy was ‘firmly back on track’.

Around 5.6million staff – including nurses, teachers and members of the Armed Forces – will have an increase from April when a one-year salary freeze ends.

At the same time, the minimum wage will rise by 59p to £9.50, boosting the incomes of two million of the lowest paid.

The Chancellor insisted his plans would deliver ‘a stronger economy’.

But there were immediate questions as to where the money would come from with the country facing an estimated £400billion bill for the Covid crisis and the Treasury having already made spending pledges worth billions of pounds.

Business chiefs warned the increase in the minimum wage could hit struggling firms and fuel concerns over inflation.

And campaigners said the boost to public sector pay could anger private sector workers facing a cost of living crisis. 

The announcement came as: 

Mr Sunak ruled out slashing VAT on household energy bills – but was urged to think again to ease the pressure on struggling households;With the freeze on fuel duty set to be extended, petrol firms were accused of ripping off motorists as average pump prices hit an all-time high;Ministers refused to set a target for when the enormous NHS backlog would be cleared despite billions of pounds of fresh spending;Critics accused the Chancellor of driving a ‘nail in the coffin’ of high streets by delaying plans to overhaul business rates;Mr Sunak was berated by the Commons Speaker for briefing a slew of details in the run-up to tomorrow’s Budget;Labour’s Rachel Reeves warned voters were facing record tax bills without receiving better public services;Experts warned that the pay hikes could be ‘blunted’ by the threat of rising inflation, rising energy bills, petrol costs and the cost of living crisis.

Mr Sunak last night announced he would lift a freeze on public sector pay that was imposed last year because of the pandemic.

Rises were stopped for all taxpayer-funded staff, with the exception of the NHS and workers earning less than £24,000.

Mr Sunak last night said: ‘The economic impact and uncertainty of the virus meant we had to take the difficult decision to pause public sector pay.

‘And now, with the economy firmly back on track, it’s right that nurses, teachers and all the other public sector workers who played their part during the pandemic see their wages rise.’

The salaries for most frontline workforces are set through an independent pay review body process. Its recommendations will be announced next year.

Mr Sunak yesterday also announced that the minimum wage for over-23s would rise to £9.50.

The Chancellor said the increase, which will come into effect in April, will mean a full-time worker on the lowest salary would get a pay rise of more than £1,000 a year – before tax.

The 6.6 per cent hike is more than twice the consumer price inflation rate of 3.1 per cent.

For those aged 21 and 22, the minimum wage will rise from £8.36 an hour to £9.18, while the figure for apprentices will go from £4.30 to £4.81 a hour.

But Mike Cherry, of the Federation of Small Businesses, said the increases ‘must be matched by support for those who will struggle to afford to maintain jobs’.

The British Chambers of Commerce’s Jane Gratton added: ‘With rising energy costs, higher raw material prices, high levels of debt as a result of the pandemic and tax increases due, many firms are facing a cashflow squeeze.

So while businesses support the minimum wage, the size of this increase – with less than six months’ notice – will cause significant concern.’

Torsten Bell of the Resolution Foundation, a living standards think-tank, said ‘fast’ rising inflation would eat up two thirds of the gains for most workers.

John O’Connell, of the TaxPayers’ Alliance, said: ‘Many had their lives, jobs and businesses upended by the pandemic, so it’s unfair for those same people to pay out for protected public sector jobs.’