The warning follows reports that the government could accept a pay rise for NHS workers in England above what has been allocated.

Recent media reports have speculated that the Independent Pay Review Body has recommended a pay award of 3% for Agenda for Change staff in 2025/26, above the 2.8% budgeted for. 

A recommendation from the Doctors' and Dentists' Review Body has been submitted to government, and NHS leaders are worried this could also propose pay rises beyond what is budgeted for.

It is estimated that every extra 0.1% on pay for all staff groups – doctors and dentists as well as Agenda for Change staff – costs around an extra £125m a year recurrently. So, if both pay review bodies recommend a pay rise of 3%, it could cost the NHS an estimated £250m extra on top of the funding it has allocated for pay rises this financial year.

Matthew Taylor, chief executive of the NHS Confederation, said the NHS has little to no headroom to make up the difference if what is agreed is above what has been budgeted for in 2025/26.

He added: ‘While we respect the independent pay review body process and its recommendations, any decision by government to increase NHS pay beyond the 2.8% that is in the budget this financial year will result in extra cost pressures that cannot be easily absorbed.

‘It is vital we continue to invest in the dedicated staff whose hard work and goodwill keeps patients safe every day of the year. We know they have faced years of limited pay increases and that is why we welcomed the government prioritising ending the industrial disputes and uplifting pay – including more generous offers for resident doctors. This will be vital for helping to boost recruitment and retention in the long term.

‘However, the NHS has entered one of its most challenging financial years, with NHS organisations having to deliver unprecedented efficiency savings. These are already resulting in cuts to certain roles and services, with more cuts expected this year.

‘Asking local NHS organisations to cover the difference themselves is effectively asking them to make cuts elsewhere, which is not sustainable.'

The NHS Confederation has already called for a national staff redundancy fund to smooth the pathway to the major budget cuts, or it could leave the health service in a financial deficit in the next financial year.