UK prime minister Rishi Sunak is exploring a 5 per cent pay rise for public-sector workers to end an escalating wave of strikes after the Treasury was given an unexpected £30bn windfall.

In a sign of a change of mood after months of strife, the Royal College of Nursing on Tuesday called off a 48-hour strike due next week in England to restart “intensive” negotiations with health secretary Steve Barclay.

The Treasury has indicated in a private memo, seen by the Financial Times, that public sector awards of up to 5 per cent for 2023-24 would have only a “low risk” of setting a benchmark for protracted high private sector pay growth.

The move came after official figures showed public borrowing was likely to be £30bn lower than expected, due to factors such as high tax receipts, a fall in energy prices and low public investment.

The improved outlook for public finances has given the prime minister scope to make improved pay offers, as he seeks to end the industrial action that has dominated politics during his time in office. Nurses in particular have won widespread public support.

Sunak’s allies said it had taken several months for both sides to “understand each other’s position” but the prime minister now wanted to move decisively to bring the strikes to a close.

Education secretary Gillian Keegan also invited teaching unions to reopen “substantive formal talks” on pay, conditions and reform, but only if the National Education Union called off walkouts set for next week. The NEU, the largest union in the sector, said it was not yet ready to abandon its strikes, because the 3 per cent pay rise proposal it knew of was not enough.

However, government insiders confirmed ministers were considering both a pay offer of about 5 per cent for public sector workers next year and a backdated payment to sweeten the deal, even though the headline figure is below forecast 5.5 per cent inflation for the next financial year.

Jeremy Hunt, the chancellor, said pay rises were recurrent and public spending restraint remained vital but added: “We do understand how difficult it is for people on the front line who’ve seen real-terms cuts in their wages.”

Government departments on Tuesday made their formal 2023-24 pay submissions to eight public sector pay review bodies, covering areas including the NHS, armed forces, police and prison staff.

They said they could only afford 3.5 per cent pay rises in the year starting in April under current Treasury allocations. A further increase of 1.5 percentage points would cost an extra £3.7bn a year for all public sector workers.

Hunt’s allies insisted any pay award above 3.5 per cent would have to be funded from existing departmental budgets, for example through efficiency savings.

However, Hunt has previously increased departmental budgets to cope with cost pressures, giving the NHS an extra £6.6bn over two years and adding £4.6bn to the schools budget in England in his Autumn Statement.

But ambulance workers represented by the Unite union have already rejected a higher pay offer from the Welsh government, and the RCN in Scotland initially rejected a pay offer at a similar level before recommending an improved offer to its members.

Rachel Harrison, national secretary of the GMB union, described the government’s offer of talks with the RCN — excluding other health unions — as a “back-room deal” and a “tawdry example of ministers playing divide and rule politics with people’s lives”.

Labour health spokesperson Wes Streeting said: “Had the government agreed to these talks two months ago they could have prevented 140,000 appointments being cancelled as a result of strike action.”

A 1.5 percentage point increase in public-sector pay would remain well below the windfall in public finances seen by the government on Tuesday.

In figures that surprised economists and the Treasury, the Office for National Statistics said the public sector registered a £5.4bn surplus in January, far better than the £7.8bn deficit expected by economists polled by Reuters.

In the financial year to January, the public sector borrowed £116.9bn, a figure £30.6bn less than forecast in November by the Office for Budget Responsibility, the UK official watchdog.

Additional reporting by Jasmine Cameron-Chileshe and Bethan Staton

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