Public sector workers will face an average real-terms pay cut of around £1,750 due to inflation as the cost living crisis soars, according to new analysis.
The influential Institute of Financial Studies has warned that many households will also struggle to keep up with bills due to the rising price of energy, which has been pushed up by Russia’s invasion of Ukraine.
The financial watchdog warned that unless Chancellor Rishi Sunak borrows billions in his Spring statement households will face what could be the biggest hit since the 1970s.
IFS director Paul Johnson said: “Either he will have to borrow billions or risk the worst hit to households for decades. He will also have to impose severe real-term pay cuts on teachers, nurses and others in the public sector, borrow even more to pay them better or cut back spending on other public services.”
In all, energy prices are set to add around £43 billion to households’ costs, meaning that the Chancellor’s £9 billion package will offset only around one fifth of the rise.
The IFS said if Sunak wants to achieve the same level of protection as he announced earlier this year, soaring prices will need around £12.5 billion on top of the £9 billion already committed,
According to forecasts, someone on a median salary of £27,500 is likely to be around £800 worse off, £300 more than earlier forecasts.
Rachel Reeves MP, Labour’s Shadow Chancellor of the Exchequer, said: “The government has allowed the cost of living crisis to spiral out of control since September - and now will make it even worse with an unfair tax hike.”
She said higher inflation will wipe out at least a quarter of the real terms increases to public service spending announced back in October.
Reeves added:“The Conservatives should halt their National Insurance hike in April – and they must look again at Labour’s proposal for a one-off windfall tax on oil and gas producers to cut household energy bills by up to £600.”
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