Threat of industrial action raised if Sunak imposes pay freeze on millions of public sector workers

However, teachers, police officers, members of the armed forces as well as NHS managers will all be affected.

The prospect of a public sector pay freeze came as official figures today showed public sector debt reached a new high of £2.08 trillion at the end of October after UK Government borrowing hit a record £22.3bn last month.

Next week’s spending review will be accompanied by the latest economic and fiscal forecasts by the Office for Budget Responsibility, the Government’s independent forecaster; they will be grim reading.

Mark Serwotka, General Secretary of the Public and Commercial Services union, said: “Civil servants along with millions of other public sector workers have kept the country running throughout this pandemic, and the last thing they deserve is another pay freeze.

“Our members have been providing universal credit, collecting tax, securing our borders and prisons in this unprecedented pandemic and have already suffered 10 years of pay restraint.

“Private companies have been allowed to secure lucrative Covid contracts to the tune of £17bn, yet ministers are not prepared to reward their own staff for all the incredible work they have done this year."

He then added: "If Rishi Sunak fails to pay public sector workers properly, there will be widespread anger and industrial action cannot be ruled out.”

Rehana Azam, National Officer of the GMB union said: “We will not stand by and allow public sectors workers to pay for this crisis with new austerity and a morale-sapping wage freeze. This is a kick in the teeth for those who have been fighting the pandemic.

“Workers have lost friends and loved ones. The crisis is still raging. Now they’re being kicked while they’re down.”

Gail Cartmail, Assistant General Secretary of trade union Unite, said any pay cap for public sector workers would be “insulting” and "just awfully unfair".

Dave Prentis, General Secretary of the public sector union Unison, said any new pay cap would be a “cruel body blow” to NHS staff not on the frontline.

“Key workers across all public services remain at the heart of the fight against Covid. The Government must do what’s right next week and announce the wage rise all staff have more than earned.

“Anything less risks destroying morale when the entire country is counting on them.”

Frances O’Grady, General Secretary of the TUC, said: “A pay freeze would be a bitter pill for care workers, refuse collectors, emergency workers and all the key workers in the public sector who have helped keep the country going through this pandemic.

“Freezing their pay is no way to reward key workers for their service. Unions will fight for the proper pay rise they have earned. Working people must not bear the burden of the crisis.”

At Westminster, Ian Blackford, the SNP leader, said reports that Mr Sunak was preparing to “impose another decade of Tory austerity cuts” would “send alarm bells ringing in Scotland and across the UK”.

He declared: "A pay freeze would be a slap in the face for workers who have been on the frontline tackling the coronavirus crisis. These Tory cuts would threaten Scotland's recovery and come on top of the damage that is already being done by an extreme Brexit, which has taken more than £4billion out of Scotland's economy.

"It's clear the Tories have learnt absolutely nothing from the last decade of Westminster cuts, which pushed millions of people into poverty, damaged public services, squeezed living standards, and held the UK economy back.”

The Highland MP added: “There must be no return to Tory austerity. Instead the Chancellor must announce a fiscal stimulus of at least £80 billion to kickstart a green recovery and a major funding increase for our NHS and public services, including a pay rise for workers who have given so much to tackle coronavirus.

"By withholding investment and blocking the devolution of financial powers, the UK Government has caused thousands of unnecessary job losses and hindered Scotland's ability to respond to this crisis. The Tories must not put Scotland's recovery at risk too.”

The Chancellor is already under fire over widespread reports he is preparing to set aside the commitment to spend 0.7% of national income on overseas aid as he looks for savings. The Treasury would not comment on the reports ahead of the Chancellor’s statement on Wednesday.

However, launching the spending review in July, Mr Sunak warned of the need for “restraint” in future public sector pay settlements.

He said awards made in the review period would have to take account of the “wider economic context”.

The Chancellor also stressed the need for “fairness,” pointing out that while public sector pay was rising, wages in the private sector had fallen back during the coronavirus pandemic.

That argument was backed by a new report by the Centre for Policy Studies, which said private sector workers had suffered far more from the economic impact of the disease.

The centre-right think-tank said measures were needed to ensure the labour market was not unfairly weighted towards the public sector.

It said that a three-year pay freeze across the public sector could save up to £23 billion, helping to plug the hole in the public finances opened up by the pandemic.

If the NHS was excluded, the CPS said that it could still save £15.3 billion over the three years.

Alternatively, it said that an annual 1% pay cap would save £11.7bn over the period or £7.7bn if it did not apply to healthcare workers.

CPS director Robert Colvile said: “The economic impact of the Covid-19 pandemic has been severe but the pain has not been shared equally.

“Healthcare workers aside, it is difficult to justify generous pay rises in the public sector when private sector wages are actually falling.

“At the same time, there is a need to control public spending and reduce the structural deficit which the pandemic is likely to have opened up.”

Meanwhile the official economic figures released this morning by the Office for National Statistics showed that October borrowing, excluding state-owned banks, was lower than forecast by economists, yet still marked the highest October level since records began in 1993 and a £10.8bn increase year-on-year.

The ONS said borrowing for the first seven months of the financial year was now estimated at £214.9bn, the highest in any April to October period on record.

It means the UK’s overall debt has reached around 100.8% of gross domestic product - a level not seen since the early 1960s - as the Government has spent more than £200bn supporting the economy through the pandemic.

Experts said it left the Chancellor facing a difficult balancing act ahead of his spending review on Wednesday with Brexit also looming at the end of the year.

Mr Sunak stressed the UK’s public finances would need to be put on a “sustainable path” over time.

He said: “We’ve provided over £200bn of support to protect the economy, lives and livelihoods from the significant and far-reaching impacts of coronavirus.

“This is the responsible thing to do, but it’s also clear that over time it’s right we ensure the public finances are put on a sustainable path.”

While borrowing in the financial year so far has been less than predicted by the OBR, it is still thought to be on track to come near its full financial year forecast of £372.2bn by the end of March 2021.

Samuel Tombs at Pantheon Macroeconomics said: “The borrowing undershoot is attributable almost entirely to tax receipts in the year-to-date exceeding its forecast by £71.4bn due to the higher path for GDP in the second quarter and third quarter than the OBR anticipated.”

He added the borrowing trend would “deteriorate in the winter and the OBR won’t revise down its borrowing forecast next week”.

The ONS data showed Government tax revenues were £39.7bn last month, down £2.7bn year-on-year as the pandemic saw falls in VAT, business rates and Pay As You Earn income tax.

Government spending on day-to-day activities rose to £71.3bn, up £6.4bn on a year earlier, including £1.3bn on the furlough scheme and £300m in Self Employment Income Support Scheme payments.