Departments will need to improve productivity to fund above-inflation pay awards, the Treasury has said.
The Budget has set departments a 2% productivity, efficiencies and savings target for next year.
The Red Book, which sets out details of spending pledges in the Budget, includes a section on public sector pay, which states: “The government remains committed to delivering fair and timely pay awards for public sector workforces in 2025-26.
“However, it will need to carefully consider the trade-offs required to afford pay awards. Over the medium term, above-inflation pay awards are only affordable if they can be funded from improved productivity.”
The document says that departments will need to fund next year’s pay rises through their settlements for 2025-26, which were set out in yesterday’s Budget. The public spending increase in the Budget included an average 3.3% rise in real-terms day-to-day spending power for departments from 2024-25 to 2025-26.
Departments “will set out their affordability evidence to the pay review bodies in the usual way, taking account of expected inflation over the next financial year”, the Red Book says. Inflation is forecasted by the OBR to average 2.6% next year.
Budget documents also say that if pay review bodies recommend pay rises that are higher than the amount departments have budgeted for, “the government will have to consider the justification – for example where there are especially acute recruitment and retention demands, or where productivity improvements can unlock further funding”.
The Cabinet Office set an inflation-busting pay remit of 5% for civil servants this year, with senior civil servants also receiving 5%, as recommended by the Senior Salaries Review Body. Unlike the SCS, rank-and-file civil servants do not have a pay review body.
This rise compared favourably to an inflation rate of 2%, although it did not meet the demands of PCS, the civil service's biggest union, for pay restoration to reflect the decline in real-terms wages in the civil service since 2010.
Earlier this month, Cabinet Office minister Pat McFadden promised that next year's public sector pay awards would come "as close to the start of the pay year" as possible, as the government aims to return to a more timely annual pay processes. But he said it was “unlikely” that public servants will receive pay increases by 1 April.