Downing Street indicated a rise in the NHS budget could be on the way later this year as it confirmed the 3 per cent pay rise for NHS staff would not come out of existing funding.

The Treasury is working up plans for a 1 per cent increase in national insurance to pay for both social care reform and improvements to the NHS in the wake of the Covid pandemic.

Announcements are expected in the autumn when government department spending will also be announced, with ministers currently lobbying the Treasury for their respective briefs.

There has been confusion about how Boris Johnson’s Government will fund the 3 per cent pay rise it announced on Wednesday for NHS staff.

A spokesman for the Prime Minister said: "The pay uplift will be funded from within the NHS budget but we are very clear that it will not impact funding already earmarked for the NHS front line.

"You will already know that we gave the NHS a historical settlement in 2018, which saw its budget rise by £33.9 billion by 2023/24 and we’ve provided £92 billion to support the NHS and social care throughout the pandemic."

Kwasi Kwarteng, the Business Secretary, yesterday threw the potential national insurance rise, which would breach a Tory 2019 election manifesto promise, into doubt.

"I don’t think we’ll put up national insurance", Mr Kwarteng told Sky News when discussing the reported plans.

The NHS was given an extra £6bn for the first half of this financial year, to help with Covid pressures, but not been told what it will get for the second half of the year.

Asked about the threat of a strike over the pay increase, with some unions saying it should have been higher after the coronavirus crisis, the spokesman said: "We believe this strikes the right balance in light of the wider public finance pressures as a result of the pandemic, which means that other public sectors aren’t receiving a pay rise.

Nurses with placards outside the Royal College of Nursing

Last night NHS managers and unions expressed fears that the pay rises will end up squeezing the budgets for patient care as winter approaches.

More than five million people are now on waiting lists, which are expected to keep increasing, as a backlog of patients in need of help are referred for it.

Chris Hopson, chief executive of NHS Providers, said: “It’s important that this pay rise is fully funded without an impact on NHS patient care.

“It’s not clear at this point how that will happen given that, due to Covid-19, the NHS still doesn’t have its budget for the second half of the year. Until those conversations are complete, it’s impossible to know what the impact on NHS budgets will be.”

‘Brutally unfair’

Pat Cullen, Royal College of Nursing General Secretary said: “This pay announcement is fast unravelling. Not only is the figure scandalously low but Downing Street has been forced to admit that the money isn’t new either.

“It is brutally unfair to force the NHS to do yet more with the same money. Ministers must be honest about the impact this would have on patient care.

“The government is failing to give the NHS the money it truly needs. This current game of smoke and mirrors is dangerous for patients and nursing staff who care for them.”