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Government's Pay Rise Strategy
- The UK government accepted independent pay review recommendations with significant pay rises for public sector workers.
- These rises are funded without raising taxes or borrowing, by reallocating from existing government budgets.
Fiscal Drag's Hidden Revenue
- Fiscal drag plays a key role in funding pay rises by causing more people to pay higher-rate taxes as thresholds remain frozen.
- This stealth tax rise increases revenue without formally raising tax rates or announcing new taxes.
Funding Pay via Reallocations
- The government plans to fund half of the pay rises by increasing visa and NHS surcharge fees for migrants.
- The remaining funds come from underspends and reallocations within other departmental budgets, avoiding new borrowing or taxes.