The IFS says a clouded outlook for the economy is the only major reason the Treasury could justifiably use to maintain its position on public sector pay rises.
The government is set for a fiscal windfall of tens of billions of pounds thanks to stronger growth and lower energy prices, making the argument not to contribute to higher public sector pay all the more difficult to maintain, according to the Institute for Fiscal Studies .
While around £6bn of this is likely to be spent on another freeze of fuel duty, this would still leave borrowing nearly £25bn lower than previously expected. It said that a CPI-matching 5.5% increase in pay across the public sector would cost around £5bn - an amount which was small compared with the recent underspend.
The IFS said that while economists had previously expected a sharp recession in 2023, those expectations had since changed, in large part because wholesale energy costs had fallen more than expected.However, it warned that this short-term improvement masked a deeper problem: the UK's long term growth potential remained disappointingly weak, raising questions about its ability to generate taxes in future.
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