Chancellor Rishi Sunak has confirmed that the Government will unfreeze public sector pay and raise the national living wage (NLW), but concerns remain about the impact of the cost-of-living crisis.

The move was announced as part of a spending review that emphasised the importance of creating what Mr Sunak described as a ‘new economy post-COVID of higher wages, higher skills and higher productivity’.

The increase in the NLW from £8.91 an hour to £9.50, which will come into effect next April, represents a 6.6% increase and will benefit over two million of the lowest paid workers, according to the Chancellor. He said a full time worker will have a pay rise worth over £1000.

The public sector pay freeze was introduced last November and was estimated to impact 1.3 million workers, less than 25% of the total number of 5.5 million in the public sector.

The decision to end the pay freeze has been welcomed as ‘sensible’. However, there are concerns that the benefits of unfreezing pay and increasing the NLW will be off-set by the cost-of-living crisis.

As part of the effort to boost skills, Mr Sunak also said that skills spending will be increased by £3.8bn or 42% over this parliament.

‘Higher skills leads to higher regional productivity and higher productivity leads to higher wages,’ he told Parliament.

The Chancellor warned that millions of adults have numeracy skills lower than those expected from a nine-year-old. In order to tackle this numeracy crisis, he announced a new UK-wide £560m scheme called Multiply. This will enable all local areas in the UK to deliver bespoke adult numeracy programmes in their area from April next year.

The Government is also making £1.6bn available for the roll out of new T-levels for 16 to 19-year-olds. T-levels are new courses aimed at growing vocational skills which follow GCSEs and are equivalent to three A levels.

Responding to the budget, the Shadow Chancellor Rachel Reeves said that the Government had done nothing to deal with the spiralling cost of living.

‘A shocking missed opportunity by a Government completely out of touch,’ she said.

Offering a response to the announcement of the end to the public sector pay freeze before the spending review, Ben Zaranko, research economist at the Institute for Fiscal Studies (IFS) said it was ‘sensible’ but warned it would not be enough in the context of the cost-of-living crisis.

‘The substantive decisions will be made next year, once the pay review bodies have made their recommendations. But a pay rise from April 2022 won't provide any immediate help or solace to public sector workers struggling with rising costs of living over the coming winter months,’ he said.

‘It would also take a sustained period of pay growth for public sector workers to undo the real-terms pay cuts that many experienced over the course of the 2010s.’

Tom Waters, senior research economist at the IFS, also warned that rising inflation would ‘blunt the real terms value of this minimum wage hike’, especially as it won’t come into effect until next April.

A statement from Centre for Cities described the NLW increase as a ‘quick win for the levelling up agenda’, but said the reality had to match the rhetoric.

The think tank’s chief executive Andrew Carter commented: ‘While a pay increase is good news for people struggling with the cost of living crisis, it does not address the reasons why they live on low pay in the first place: a lack of well-paid jobs in their local area.

‘We’ve seen today the beginnings of a plan focused on skills, innovation and infrastructure to address this, but turning it from rhetoric to reality will depend on ministers' willingness to work with metro mayors and councils on delivering it. I am now looking to the delayed Levelling Up White Paper to set out how this will happen.’

Commenting on the Budget, UNISON general secretary Christina McAnea said: 'Public sector workers won't be raising many glasses to the chancellor. With no certainty pay will rise above inflation, services will go on shedding experienced staff.

'Only time will tell if the Government’s public sector wage policy is thawing. Otherwise, the pay freeze ends in name only.

'Wage rises below the cost of living are effectively pay cuts and won’t reduce the 200,000-plus vacancies across the NHS and social care.'