Chancellor of the Exchequer Jeremy Hunt has been told he could offer striking public sector workers a bigger pay rise by cancelling plans for a fuel duty freeze.
Ahead of the Spring budget announcement on 15 March, the Institute for Fiscal Studies (IFS), a tax and spending watchdog, said Hunt faced a “straight choice” between subsidising car driving and helping public sector employees.
Paul Johnson, director of the IFS, said concerns about a 5.5% pay rise sparking a fresh round of inflation were exaggerated.
A 5.5% increase would add roughly £5.5bn to the budget, with the planned fuel duty freeze costing the government an extra £6bn.
“If as we expect we have yet another freeze on fuel duties, that is a £6bn in-year tax cut and indeed an injection of money into the economy. And there is a straight choice there, £6bn goes quite a long way, if you are spending that on public sector pay rather than cutting fuel duty,” Johnson said in the Guardian.
The IFS disputed the Treasury’s figures which suggest an increase to a 5.5% offer from 3.5% offer would cost £5.5bn.
Instead, it argues somewhere between 30% and 40% would be clawed back in higher VAT, income tax receipts and national insurance payments, bringing the total cost down to nearer £3bn.