The political cost of the 1% public sector pay cap is amongst the many pressures threatening chancellor Philip Hammond’s borrowing targets ahead of next month’s budget, according to the Institute for Fiscal Studies (IFS).

The think tank’s analysis of the challenges and options facing Mr Hammond says that retaining the 1% cap for most public sector workers over the next two years would see public sector pay fall to its lowest level relative to private sector pay for at least 20 years. That risks, the report warns,  ‘greater problems with recruitment, retention and morale’.