Rachel Reeves pointed to public sector pay rises that would break inflation, highlighting the cost of strikes as a result of “no compromise”.
The chancellor promised that “people will not have to wait long” for a decision after reports that independent pay review bodies had recommended a 5.5 per cent rise for teachers and around 1.3 million NHS staff.
“There is a cost of not settling, a cost of further industrial action, a cost in relation to the recruitment challenge we face,” she told the BBC. Sunday with Laura Kuenssberg program.
“We will do it the right way and make sure the money adds up,” Ms Reeves added.
She said an announcement would be made by the end of July, along with the publication of the Treasury’s review of the state of the public finances. Schools and hospitals are unlikely to be able to fund a 5.5% pay rise, more than double the current rate of inflation, from their current budgets.
Paul Johnson, director of the Institute for Fiscal Studies, suggested that pay rises could cost at least £3bn more for schools and the NHS alone.
“In terms of cost, there is no specific figure for schools,” he told the BBC. “It’s probably 1 or 2 per cent, it’s certainly not anywhere near 5.5 per cent, so we are certainly looking at at least a £1bn addition to schools’ costs compared to what you’re currently projecting.”
“And at least double that number across the NHS if the proposals for the NHS are similar, and it looks like they might be.”
Ms Reeves accused the Conservative government of “running away” from making tough decisions on pay, adding that the recommendations were on the desk of former education secretary Gillian Keegan before the election was called.
“She didn’t do anything about it. She didn’t publish it, she didn’t say how she was going to respond to it,” the chancellor said.
“They called elections, they didn’t make the hard decisions, they ran away from them, and now we have to fix it and pick up the pieces,” she added.
However, shadow chancellor Jeremy Hunt denied he had avoided tough choices on public sector pay.
“I’ve been interviewed on many occasions over the years and you can criticize me for many things, but not making tough, difficult decisions is the one thing I don’t think people will point at me,” he said in an interview with Laura Kuenssberg.
Higher-than-expected wage increases could pose a major challenge to Rachel Reeves’s first budget, likely to come in the fall, after promising to rein in borrowing and rule out a series of tax hikes during the election campaign.
But failure to meet the pay review bodies’ recommendations, which are expected to be published this month, could lead to a clash with unions representing six million public sector workers.
Daniel Kebede, secretary general of the National Education Union, has warned that ignoring the recommendations of the wage review bodies could lead to a strike.
He noted that the new education minister, Bridget Phillipson, had “worked really hard” to improve relations with the teaching profession, and said: “It would be very difficult for the Treasury to step in and then not implement the 5.5 per cent pay bonus.”
“We certainly want to avoid a strike, but it may seem inevitable if the Treasury makes such an intervention.”
Also on Sunday with Laura KuenssbergMs Reeves said the government would conduct a review of pensions to help stimulate growth by freeing up cash in schemes.
“People who sacrifice and save every month to put something towards their retirement deserve better than the returns they get on those savings today,” she said, adding that there was “urgency” on the part of the government to unleash investment.