Philip Hammond could give a £5bn pay rise to public sector workers and avoid a staff exodus, IFS claims
Scrapping the freeze could be paid for by cancelling plans to cut corporation tax by 2020
CHANCELLOR Philip Hammond could give a £5billion pay rise to public sector workers and avoid a damaging staff exodus, the respected IFS think tank has said.
Scrapping the 1 per cent pay cap on wages could be paid for by cancelling plans to cut corporation tax from 19 to 17 per cent by 2020.
This would allow Mr Hammond to stay on track to meet his target of eliminating the deficit by the middle of the next decade.
The IFS report warned that refusing to give Britain's five million public sector workers a pay rise carries a “significant risk” of nurses, teachers and other key workers quitting, and the Government would face a massive recruitment crisis.
But it said an extra £9billion a year would be needed to pay public sector workers the same as their private sector counterparts.
The IFS said it would cost £33billion a year to end austerity altogether amid mounting speculation that Mr Hammond will use his autumn Budget to ease spending cuts.
This would end hopes of balancing the nation’s books by 2025 and keep the deficit at its current level of 2.4 per cent of GDP.
It would allow additional borrowing to fund a £17 billion boost for public services, £5 billion of tax cuts and an £11 billion increase in benefit spending.
And it would allow state debt to fall as a share of national income so long as the economy continues to grow as expected.
IFS deputy director Carl Emmerson said abandoning austerity would be “a very sharp change in direction” but was “an option in a way that it was not an option back in 2010”.
But he warned it would leave the Chancellor with little wriggle room to deal with economic bumps after Brexit.
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Mr Emmerson said: "We could choose to continue to run deficits of around the current level over the longer term.
"If the economy were to grow as expected this would be sufficient to see debt fall as a share of national income over the longer term.
"It would mean that over the next few years household incomes could be better supported and a greater quality and quantity of public services could be enjoyed.
"But it would also involve planning to live with elevated public sector debt for longer.
"It could give the Chancellor less room for manoeuvre if the economy were to suffer badly, for Brexit-related or other reasons, over the next few years.
“And it would almost certainly require the abandonment of the pledge to eliminate the deficit in the mid-2020s."