Chancellor Rachel Reeves has said the Government will “make sure the sums add up” if public sector workers are given above inflation pay rises.
Reports which first appeared in The Times suggest independent pay review bodies have recommended the 5.5% rise for teachers and around 1.3 million NHS staff.
Speaking to the BBC, the Chancellor said she values public service workers and “people won’t have long to wait for a decision”.
“There is a cost to not settling, a cost of further industrial action, and a cost in terms of the challenge we face recruiting,” she told Sunday With Laura Kuenssberg, stressing her spending rules were “non-negotiable”.
“We will do it in a proper way and make sure the sums add up.”
But ministers would not be drawn on whether they would implement the pay review bodies’ recommendations.
Treasury minister James Murray said the Chancellor would present the Government’s response to the recommendations at the end of the month, taking into account the state of the public finances, adding it would not be “helpful” for him to “pre-empt the process that we are going through right now”.
Paul Johnson, director of the influential Institute for Fiscal Studies, suggested the pay rises could cost an extra £3 billion for schools and the NHS alone.
He told the BBC: “In terms of the cost, there isn’t a specific number that is budgeted for schools, it’s probably 1 or 2%, it’s certainly nothing like 5.5%, so we’d certainly be looking at at least an additional £1 billion on schools’ costs relative to what they’re currently expecting.
“And a number at least double that across the NHS if the proposals for the NHS are similar, which it appears that they might be.”
Discussing public sector pay on Sunday morning, the Chancellor accused Conservative former ministers of “running away” from making a decision.
She singled out former education secretary Gillian Keegan, saying the pay review body’s recommendations for teachers had been on her desk for “months”.
“She didn’t do anything about it. She didn’t publish it, she didn’t say how she was going to respond to it,” Ms Reeves said.
“They called an election, they didn’t make the tough decisions, they ran away from them and it’s now up to us to fix it and to pick up the pieces.”
Ministers have repeatedly blamed their predecessors for leaving them with the worst fiscal inheritance since the Second World War.
But former chancellor Jeremy Hunt told Sunday With Laura Kuenssberg this was “absolute nonsense” and designed to lay the groundwork for tax rises.
He said: “I was looking until a couple of weeks ago at the same numbers that Rachel Reeves is now looking at.
“It’s very clear that if you are prepared to show restraint on public sector pay, as we did last year, if you’re prepared to be ambitious on public sector productivity, as I was in the budget, and you’re prepared to do welfare reform, which was glaringly absent from the King’s Speech – if you do those three things it’s perfectly possible to balance the books in a way that means taxes don’t have to rise.
“Now I think it’s very clear from what we’ve seen in the first two weeks of this Labour Government that they’re not prepared to take those difficult decisions.”
Mr Hunt also denied having “run away” from making decisions on public sector pay, saying: “You can criticise me for many things, but not taking tough and difficult decisions is one thing I don’t think people would level at me.”
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