Prime Minister Sir Keir Starmer risks an early confrontation with unions as he prepares to face down demands for bumper pay increases.
Ministers will soon have to respond to recommendations from the pay review bodies covering millions of NHS staff, police, teachers and other public servants.
The review bodies usually report back in July and Sir Keir warned “the finances are in a very poor state”, suggesting there will be little scope for generous pay awards.
The head of the largest education union warned that Sir Keir’s comments are “not what we want to hear from the new Prime Minister”.
Sir Keir’s Government took office amid continuing industrial action following an unprecedented two years of strikes by hundreds of thousands of workers.
Several disputes remain unresolved, including pay rows involving junior doctors, with fresh strikes not being ruled out unless they are resolved.
Health Secretary Wes Streeting has already met junior doctors from the British Medical Association (BMA) to “reset” relations but he warned that finding an end to the dispute would “not be easy” due to the economic circumstances of the country.
Chancellor Rachel Reeves has already warned of “difficult decisions” coming on public sector pay.
Asked if the finances were worse than he thought and if he would give the public sector unions what they want on wages, Sir Keir told reporters: “No, is the answer to the last bit of that question.
“Obviously, there are a number of pay settlements to be gone through on the annual basis.
“But the finances are in a very poor state, I think that is obvious.
“And that’s why we’ve been careful in what we said going into the election, and we’ll be careful what we say coming out of it.”
Downing Street sources said that although Sir Keir would not give the unions what they want, above-inflation pay rises could still be possible, with negotiations taking place as usual.
National Education Union general secretary Daniel Kebede said: “This is not what we want to hear from the new Prime Minister.
“We expect an above-inflation teacher pay offer that is fully funded.
“Failing to provide properly funded pay increases will have severe costs in terms of recruitment, retention and the delivery of education.
“Education is already at breaking point. Another below-inflation pay rise will break it.”
Sharon Graham, head of the Unite union, said: “The biggest crisis facing the NHS and other public sector areas is the inability to recruit and retain workers, caused by many years of pay freezes and below-inflation pay rises.
“Experienced staff are leaving the NHS in droves.
“If we don’t sort out the crisis of people, we won’t sort out the crisis in the NHS. New scanners need staff to operate them.
“Whatever the plan, it will need more money. This is the undeniable fact.”
A Royal College of Nursing spokesman said: “The next NHS pay award must be fair and come swiftly.
“We will consult our members on whether it meets their expectations. Any pay award must begin to turn around the staffing crisis in our health service.”
