Analysis by the TUC and Landman Economics modelled the economic impacts of reversing cuts to the value of public sector pay that took place over the period 2010/11 to 2020/21.

It found that England’s economy would receive a £3.3bn boost, speeding up recovery from the pandemic and making pay rises for other workers more likely too – the ‘pay circle’ effect. The move would make 4.3 million public sector workers better off, in some cases by thousands of pounds a year.

The £3.3bn economic boost is based on restoring median public sector pay by 3.2% in line with CPI inflation. As this is a median figure, some workers would need a higher increase to restore the real value of their pay.

The TUC also cautions that CPI can underestimate the degree to which the cost of living is rising. And in pay negotiations, RPI is often a better guide. It calculated that if the chancellor restored median public sector pay by 10.1%, in line with RPI inflation, it would boost the economy by £10.5bn.

The chancellor has put in place a pay freeze that is affecting the majority of public sector key workers, such as police, teachers and civil servants. Those currently earning less than £24,000 will get a guaranteed pay rise for one year of £250, but this is not a permanent and will not be consolidated into their pay for future years.

Pay offers have been made of 1.5% for higher education staff, 1.75% for local government staff, and  3% for NHS staff. But many key workers in the public sector are excluded from these awards, including outsourced NHS staff such as cleaners and porters.

And with CPI inflation currently 3.2% and RPI inflation currently 4.8%, all these workers are likely to find they that the value of their pay has been cut this year.

The analysis is part of a policy briefing sent by the TUC to all MPs today, which sets out the importance of protecting the pay circle – the chain of spending that connects workers’ wages around the whole economy.

The policy briefing calls on government to avoid the mistakes of the last decade when pay freezes and caps damaged the pay circle. Consumer spending and economic demand were reduced, affecting all workers, while living standards fell for workers across both the public and private sector.

The union body is calling on the government to protect the pay circle and prioritise pay rises for public sector key workers across the period of the forthcoming spending review.

Frances O’Grady, TUC general secretary, said: “We’re all part of the same pay circle. When key workers spend their pay, it goes into other people’s pay packets. Nurses, carers, shop staff, drivers, small businesses – right around the economy, we’re all connected.

“It is up to government to keep the pay circle moving. If the chancellor gives key workers the pay rises they’ve earned, it will protect the spending businesses need to recover. And that will help other workers get pay rises too. But if the chancellor attacks the pay circle in his spending review, everyone will suffer. And we could have another slump in living standards across the whole economy.”