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Budget 2021: Public sector pay freeze to end, says Sunak

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Sunak to lift public sector pay freeze. (Photo by Aaron Chown/PA Images via Getty Images)
Rishi Sunak will end the pay freeze on public sector workers such as nurses, teachers and police officers. Photo: Aaron Chown/PA Images via Getty

Chancellor of the exchequer Rishi Sunak will end the public sector pay freeze for millions of workers in the upcoming budget and spending review on Wednesday.

The end of the year-long “pause” on public sector pay, is likely to mean pay rises for millions of teachers nurses, police, and members of the armed forces as the economy recovers from the impact of the pandemic.

Some 5.7 million people working in the public sector are set to see their pay rise after the freeze was announced in November last year due to COVID "uncertainty".

Just under half of public sector workers had their pay frozen, with exemptions for NHS workers and those earning less than £24,000, with the freeze coming into effect in April 2021.

At the time, Sunak said it was unfair for millions of workers to get a rise while many of their private sector counterparts were being furloughed or losing their jobs.

Watch: National Living Wage to rise to £9.50 an hour

Read more: National Living Wage boost for millions of low-paid UK workers

The Treasury said the move helped to "protect jobs at a time of crisis" and also "ensured the gap between public and private sector pay did not widen further.

Public sector average weekly earnings went up by 4.5% in 2020/21, while private sector pay rises were a third lower than they were before the pandemic, at 1.8%, according to the Treasury.

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

“Along with our Plan for Jobs, this action helped us protect livelihoods at the height of the pandemic.

“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 Treasury pointed to a "solid recovery in the economy and labour market" that has allowed the pay freeze to be lifted.

Read more: Budget 2021 preview: What to expect from chancellor Rishi Sunak

The UK’s national living wage (NLW) is also set to increase to £9.50 an hour next year, benefitting millions of the country’s lowest paid workers.

From 1 April 2022, wages will rise 6.6%, upon the recommendation of the Low Pay Commission, meaning full-time workers earning the NLW will earn an extra £1,000 a year.

It comes as the government has faced mounting pressure to help low-paid, and younger workers, who have been hit hardest during the coronavirus pandemic. It also follows a recent removal of the £20-a-week universal credit (UC) uplift.

The government said the rise will help compensate those who are losing out from the universal credit cut, and have been hit by the effect of inflation on household budgets.

However, economists warned the measures would not compensate for inflation rises and the end of the universal credit uplift. 

Read more: Budget 2021: City firms call on Sunak to abolish bank surcharge

Tom Waters, senior research economist at the Institute for Fiscal Studies, said: "While this boosts earnings for full-time minimum wage workers by over £1,000 a year, those on universal credit will see their disposable income go up by just £250 because their taxes rise and benefit receipt falls as their earnings increase."

“Rising inflation will also blunt the real-terms value of this minimum wage hike – and of course while prices are rising now, the increase in the minimum wage won’t kick in until April," he said.

Watch: What is Universal Basic Income?

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