Labour has accused the Government of a “shambles” over public sector pay, amid confusion over the future of the 1% cap on annual rises.

Hopes were raised that the long-standing cap was set to be scrapped, after a senior Number 10 source briefed reporters that Prime Minister Theresa May accepted voters were “weary” of austerity and was ready to listen to recommendations from the independent bodies that review public sector pay.

Decisions would come in Chancellor Philip Hammond’s Budget in the autumn, he indicated.

Philip Hammond
Philip Hammond (Stefan Rousseau/PA)

And Defence Secretary Sir Michael Fallon became the latest in a string of ministers to suggest that the Government will have to consider whether to persist with the cap, which is currently due to remain in place until 2019/20.

But the PM’s official spokesman later played down suggestions that a review of the cap was in the offing, insisting that “the policy has not changed” – a line which was echoed by the Treasury.

Health Secretary Jeremy Hunt said the Government would make a final decision after a report by the pay review body.

Jeremy Hunt
Jeremy Hunt (David Mirzoeff/PA)

“What I can say is that we will not make our decision on public sector pay until the pay review body has reported, and we will listen to what they say and we will listen to what people in this House have said before making a final decision,” he said.

Despite the confusion, the Government saw off a Labour challenge that demanded an end to public sector pay restraint, which has significantly reduced the value of wage packets since 2010 due to a two-year freeze, followed by years of 1% caps on annual rises.

In the first Parliamentary test of Mrs May’s minority government, Conservatives backed by the DUP defeated the opposition amendment to the Queen’s Speech by 323 votes to 309, a majority of 14.

(PA graphic)
(PA graphic)

But shadow chancellor John McDonnell said the confusion surrounding the Government’s intentions over pay reflected a “war” between 10 Downing Street and the Treasury on the issue.

“This war between Number 10 and the Treasury isn’t sustainable. Shambles,” said Mr McDonnell.

Liberal Democrat Leader Tim Farron said: “The Tories are in utter chaos. They have U-turned on their own U-turn within the space of a few hours.

Tim Farron
Tim Farron (David Mirzoeff/PA)

“This is not strong and stable, it is a Government that is spinning out of control. The Treasury can find £1 billion for the DUP so Theresa May can cling on to power, but can’t find the cash to properly pay our teachers, nurses and police.

“Public sector workers deserve a pay rise now, not for this decision to be kicked into the long grass.”

Answering questions following a speech in London on Wednesday morning, Sir Michael was asked whether service personnel could expect above-inflation pay rises.

Sir Michael Fallon
Sir Michael Fallon (Ben Stevens/PA)

He replied: “That is a huge question. It is partly a matter for the pay review bodies but it also involves a forecast of where you expect inflation to be.

“I think we expect inflation to start falling back again from the autumn onwards. This is something we have to consider, not just for the Army but right across the public sector as a whole.”

The Downing Street source said: “Ministers, including the Prime Minister and the Chancellor, have been clear that we are going to listen to the messages that were sent at the election. We understand that people are weary after years of hard work to rebuild the economy.”

Asked whether the cap would be reviewed for future years, he added: “Public sector pay restraint is one of the tough choices we’ve had to make to balance the books after Labour’s crash and what was left behind.

“We are working through and looking at recommendations from pay review bodies that are coming.”

TUC general secretary Frances O’Grady said: “It’s about time that hard-working public sector workers got the pay rise they’ve earned. If the cap is lifted, it will be a massive victory for trade union campaigning.”

Labour leader Jeremy Corbyn said: “Tonight, the Conservatives had an opportunity to put their money where their mouth is, by ending cuts to our police and fire service and lifting the public sector pay cap. Although Government ministers said they had learned the lessons of the General Election and were listening to voters, it is clear that nothing has changed.

“They had the perfect opportunity to walk the walk, but instead they marched through the lobby to show Tory austerity is business as usual. While the money is there when the Conservatives need it to keep themselves in office, the rest of the country now face more devastating cuts to our emergency and other vital services.

“The Conservatives clearly plan to keep working for a privileged few. Only Labour is ready to form a government that will work for the many.”