The IPPR said a significant amount of any money used to lift the pay cap would be returned to the Treasury almost immediately in the form of higher tax receipts and lower welfare payments.
Today’s report cites NASUWT findings from last year that a school teacher outside London who was on £36,624 in 2010-11 would have suffered a £2,800 real-terms pay cut by 2017-18.
This would rise to £3,794 if the public sector pay cap was retained until 2019-20.
The report says the cost of increasing public sector pay in line with CPI inflation over the next two years would be £5.8 billion.
But this falls to £3.5 billion once higher receipts from income tax and National Insurance together with lower welfare payments are taken into account, the study finds. It says higher spending in the economy would reduce the figure further – to £3.3 billion by the end of the 2019-20 financial year.
The GMB union, which supported the research, said the findings proved that lifting the seven-year-long pay cap was affordable.
Rehana Azam, GMB national officer, said: “The last objection to providing decent pay rises was affordability but this research shows that almost half that cost would be returned to taxpayers and could be reinvested in public services.
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