At least 1.3m public sector workers are set to see their wages rise next year after the government confirmed their pay freeze is being lifted.
Chancellor Rishi Sunak will use his Budget on Wednesday to say nurses, teachers and members of the armed forces are among those set to benefit.
A “temporary pause” in salary progression was introduced last November as a response to the pandemic.
Labour says tax and price rises mean families face a cost of living crisis.
The public sector pay freeze was part of the government’s response to what it described as the “economic emergency” caused by Covid, with only the lowest-paid excluded.
In his spending review in November 2020, Mr Sunak said he could not justify an across-the-board increase when many in the private sector had seen their pay and hours cut in the crisis.
He said the pandemic had forced ministers to take extraordinary measures to protect people’s jobs and incomes by “targeting our resources at those who need it most”.
Economy ‘back on track’
But in an announcement on Monday evening, the Treasury said the chancellor would use his forthcoming Budget to say “the solid economic recovery and encouraging signs in the labour market” mean the “pay pause” can be lifted.
In a statement, Mr Sunak said: “The economic impact and uncertainty of the virus meant we had to take the difficult decision to pause public sector pay.
“Along with our plan for jobs, this action helped us protect livelihoods at the height of the pandemic.
“And now, with the economy firmly back on track, it’s right that nurses, teachers and all the other public sector workers who played their part during the pandemic see their wages rise.”
The Treasury said the “temporary pause” had helped ensure the gap between public and private sector pay did not widen further during the height of the pandemic.
It said public sector average weekly earnings rose by 4.5% in 2020/21 whilst private sector wage increases were a third lower than they were pre-crisis, at 1.8%.
And it said exactly how much of a pay rise public sector workers receive depends on the recommendations from the independent pay review bodies, who set the pay for most frontline workforces – including nurses, police officers, prison officers and teachers.
Ministers will be “running a full pay round and the awards will be announced next year once government responds to the pay review bodies’ recommendations”, the Treasury added.
The announcement comes at a time of fierce debate about the pressure families are under amid soaring energy bills and price rises for goods in shops.
Opposition MPs have accused the Conservatives of presiding over a cost of living crisis with cuts to universal credit and tax rises to fund the NHS and social care.
There is disquiet among some Conservative backbenchers too about whether ministers should be doing more to help struggling households.
‘Never a good time’
The UK’s largest union, Unison, said the pay freeze would continue “in all but name” unless government departments get extra money.
Its general secretary Christina McAnea said while there was “never a good time to freeze public sector pay”, to do so “at the peak of a pandemic was the height of folly” while “staff were doing their all to keep under-pressure services running”.
She added: “There can be no decent public services without the people to run them.
“Pay freezes don’t help employers hold on to experienced staff, nor attract new recruits.
“But if the chancellor doesn’t allocate extra money to government departments to fund the much-needed wage rises, the pay freeze will continue in all but name.”
Labour says many of those working on the frontline dealing with Covid are among those being hit by the government’s choices.
Shadow chief secretary to the Treasury Bridget Phillipson said: “This Conservative government’s choice last year to freeze pay for so many frontline workers, who have been among the real heroes of the pandemic, was damaging and unsustainable.
“The government must work to ensure a fair settlement and reflect the vital work of all key workers including many who have been burnt out over the course of the pandemic.”