The government is expected to agree to above-inflation pay rises for public sector workers in the coming days, amid concerns over the costs of not settling, Sky News understands.
Independent pay review bodies have already recommended the above-inflation figure to ministers for teachers and nurses of about 5.5% to keep them in line with increases in the private sector, reports have suggested.
Sky News' political editor Beth Rigby understands Chancellor Rachel Reeves will likely sign off on the independent recommendations as early as next week for all public sector staff, despite the Institute for Fiscal Studies warning such a rise could cost an extra £10bn on top of the 3% rise ministers have reportedly already budgeted for.
Speaking on her Electoral Dysfunction podcast, Rigby said government sources were worried about the other costs of not agreeing to the pay review bodies' recommendations - namely industrial action from the unions.
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"[It would be] noise around a new government that they don't want, [especially] when they criticised the Conservatives so much for not settling on pay deals," she said.
A Whitehall source told Rigby they would be "very surprised" if the Treasury doesn't accept the pay recommendations given the risk of industrial action if the government refuses.
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Tap hereIt comes as Ms Reeves is expected to reveal a black hole in the public finances of around £20bn next week.
The last government was plagued by strike action over public sector pay after the soaring inflation following Liz Truss' mini-budget, with nurses, doctors, teachers and rail workers among the many sectors who downed tools.
While ministers eventually agreed deals with most of the unions, junior doctors and some rail workers are continuing to fight for better pay and conditions.
During the election campaign, Labour promised to get to the negotiating table straight away if they won, and Health Secretary Wes Streeting has already held meetings with the British Medical Association, while Transport Secretary Louise Haigh is in discussions with the Aslef rail union.
But both Ms Reeves and Prime Minister Sir Keir Starmer have warned of their "inheritance" from the Conservatives, claiming the public purse is in an even worse state than they first thought.
Ms Reeves is due to give a speech to parliament next week outlining the state of the economy, and her plans to tackle it.
This is also when she could announce her decision on public sector pay.
As of March this year, there were 5.95 million public sector workers in the UK, according to the Office for National Statistics (ONS).
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Speaking to Sky News' Sunday Morning With Trevor Phillips, the Exchequer Secretary to the Treasury James Murray said he would set out the position of the government "in the context of the public finances and the public spending inheritance that we have".
But hinting at accepting the 5.5% figure, Mr Murray said: "Let's be clear, there is a cost obviously to the response to the pay review bodies' recommendations."
"But... there is also a cost to not striking a deal because you then run the risk of industrial action, there are longer-term problems in terms of recruitment and retention of teachers, of people who work in the NHS, police officers and so on. So we need to set out our way forward."
Mr Murray added: "The proper process is to consider the pay review bodies' recommendations and then set out our response in light of the public finances and the public spending inheritance."
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