Jeremy Hunt has pledged to find additional money to help fund public sector pay deals after admitting that Britain’s high level of inflation has made it impossible for Whitehall departments to end strikes without Treasury support.
The chancellor conceded on Wednesday that the only way the government could fund pay awards without cutting frontline services was if he provided financial support to cabinet colleagues.
Speaking to the Treasury select committee, Hunt dropped his previous insistence that pay offers for doctors, nurses and teachers would have to be funded by departments making efficiency savings.
The chancellor said that when the pay deals were completed, there would be “discussions with the Treasury” about the level of support.
Making clear that the UK’s annual inflation rate of 10.4% created “special circumstances”, Hunt said there would need to be a deal on how much of the cost would be borne by the Treasury and how much through efficiency savings and reallocation of departmental budgets.
“There will be discussions about how much help comes from the centre, but we haven’t had those discussions yet,” he said. The Treasury has a contingency reserve – a rainy-day fund – that Hunt can draw on to meet unforeseen spending needs.
The chancellor said the government had made a commitment that there would be no cuts to frontline public services and that the discussions with departments would ensure that this pledge was met.
Giving evidence to the committee of backbench MPs about his budget, Hunt said the annual inflation rate would fall in the coming months because last year’s sharp price rises in energy and food would not be repeated.
However, he said the cost of living crisis was not over. “There are still inflationary pressures in the economy and I am very concerned about that.”
Noting that inflation rose unexpectedly last month, the chancellor said: “We need to keep our eye on the ball. There is no room for complacency.”
Hunt accepted that the highest inflation in four decades would lead to a 6% drop in living standards over two years. “I very much recognise the squeeze,” he said. “There is pressure on living standards. The long-term sustainable way to relieve that pressure is through economic growth.”
The chancellor said the budget had contained measures to boost Britain’s sluggish growth rate, but he admitted the government would need to mitigate the risks posed by Joe Biden’s Inflation Reduction Act (IRA) – a $369bn (£299bn) package of subsidies designed to encourage firms to invest in green technology in the US.
The chancellor said it was a “good thing” the US was taking the climate crisis seriously, adding that there was an element of catch-up in the American approach.
But he accepted that the IRA posed risks to the UK’s green sector that the government would need to counter. While rejecting the idea the UK could match the US “subsidy for subsidy”, Hunt said the overall package offered needed to be attractive to investors.
Hunt told MPs he would come up with a more detailed response to the IRA, and to the EU’s green deal package, in his autumn statement later in the year.
