REVERSING a decade of real-terms pay cuts for the public sector would give the economy a £3.3 billion shot in the arm, new TUC analysis reveals.

The study, conducted in partnership with Landman Economics, shows that boosting the spending power of millions of public-sector staff in line with inflation would rapidly speed up recovery from the Covid-19 pandemic.

The TUC pointed out that increasing public-sector pay would also make rises for other workers more likely because of the “pay circle effect” — the chain of spending that connects workers’ wages throughout the whole economy.

Each English parliamentary constituency would gain an average of £6.2 million if the cuts were reversed, the TUC said, with Chancellor Rishi Sunak’s own seat of Richmond in Yorkshire pocketing an extra £7.6m.

Before next month’s spending review, the TUC is calling on Tory ministers to avoid the mistakes of the last decade when austerity pay hit all workers as falling consumer spending crippled demand.

Living standards dropped as Britain suffered its longest pay slump in 200 years, with a lack of wage growth also limiting tax receipts. 

TUC general secretary Frances O’Grady said: “When key workers spend their pay, it goes into other people’s pay packets.

“Nurses, carers, shop staff, drivers, small businesses — right around the economy, we’re all connected.

“It is up to government to keep the pay circle moving. If the Chancellor gives key workers the pay rises they’ve earned, it will protect the spending that businesses need to recover. 

“But if the Chancellor attacks the pay circle, everyone will suffer. And we could have another slump in living standards across the whole economy.”

Mr Sunak has implemented a pay freeze for this financial year that affects the majority of public-sector workers, such as police, teachers and civil servants.

In England and Wales, those currently earning less than £24,000 will get a meagre non-permanent pay rise of just £250 this year. 

Staff in higher education were offered a 1.5 per cent increase and local government workers an extra 1.75 per cent, while most NHS staff have been offered a 3 per cent increase, which members of unions the Royal College of Nursing, Unison and GMB have already rejected. NHS workers in Scotland will get a 4 per cent rise.

But many public-sector workers are excluded from these awards, including outsourced NHS staff such as cleaners and porters. 

The soaring cost of living – CPI inflation is currently at 3.2 per cent and RPI inflation at 4.8 per cent – is also set to wipe out any pay increases, hitting key workers once again after years of austerity wages. 

The TUC proposes raising median public-sector pay by 3.2 per cent, but warned that average pay for firefighters was down by £2,600 (-7.4 per cent) between 2010-11 and this year, while nurses lost £2,500 (-7.3 per cent) and many teachers missed out on £2,000 (-5.1 per cent).

Reacting to the analysis, GMB national secretary Rehana Azam said that the potential benefits for workers and the economy make the move a “no-brainer.” 

“Key workers don’t spend their cash on luxury yachts or stash it away in tax havens, they pay their rent and do the shopping,” she said.

“But with inflation rocketing, our key workers are facing real-terms pay cuts and are really feeling the pinch.

“We should cherish our key workers — instead we offer poverty pay and increasingly poor conditions. No wonder recruitment is down and morale is at an all-time low.

“It’s time to do something about it. This government must make sure key workers get the pay rise they deserve, including at least £15 an hour for care workers.”

Tory ministers have claimed that they cannot afford more generous pay rises due to the impact of the pandemic.