By Suban Abdulla

LONDON (Reuters) – British public-sector employers now expect to raise pay faster than their private-sector counterparts for the first time since late 2020, after the new Labour government approved big public-sector pay rises funded in part by higher employer taxes.

The Chartered Institute of Personnel and Development said 2,000 employers surveyed from Sept. 18 to Oct. 9 reported that median expected pay rises for the coming 12 months in the public sector had risen to 4% from 2.5% the quarter before.

This took the public sector above the median for private-sector pay settlements, which held at 3%.

Looking at the next three months alone, public-sector employers expected new settlements to raise pay by a median 5%.

“Significant public sector pay awards announced since the election, along with the additional public sector spending announced in the recent budget, have provided a welcome boost to public sector employers and workers,” James Cockett, the CIPD’s senior labour market economist, said.

Shortly after taking office in July, British finance minister Rachel Reeves announced pay rises of 4.75%-6% for millions of public-sector workers.

During the pandemic, public-sector pay lagged behind both rises in the private sector and a sharp increase in inflation.

Cockett said private-sector firms now faced increased costs which would likely affect their hiring plans and wage setting.

Reeves on Oct. 30 unveiled the biggest tax increases since 1993, including a 25 billion pound ($32 billion) jump in social security contributions paid by employers alongside a 6.7% rise in the minimum wage.

“These increased business costs are likely to act as a barrier to growth and could lead to employers offering lower pay rises, being more cautious about investing in workers’ skills or taking on new staff,” Cockett said.

Official data on Tuesday is expected to show annual growth in average weekly earnings overall – which tends to be higher than pay settlements – slowed to 4.7% in the three months to September from 4.9% in the three months to August.

The Bank of England is closely monitoring wage growth as it tries to gauge inflation pressure in the economy. Last week it said further interest rate cuts are likely to be gradual after it cut the benchmark Bank Rate to 4.75% from 5%.

($1 = 0.7738 pounds)