Keir Starmer is heading for a showdown with unions after he ruled out further increases in education and NHS budgets to fund pay rises. Schools and hospitals could be hit by strikes after unions warned they would ballot members on industrial action.

Pay review bodies are reportedly recommending inflation-busting increases of as much as 4% for teachers and 3% for NHS workers, but the Government announced in December that it was only budgeting for a 2.8% rise for public sector workers. Last night Downing Street confirmed that no extra money would be provided. The Prime Minister’s official spokesman said: “There’ll be no additional funding for pay if recommended awards exceed what departments can afford.”

The increases could still go ahead but they would have to be funded partly from existing budgets. It would mean schools and NHS services could forced to make cuts elsewhere, and unions say this would be unacceptable.

The National Education Union agreed earlier this month to launch a formal ballot on strike action if the government’s pay offer for teachers was not fully funded, and the NASUWT union’s annual conference voted to “move immediately to ballot members for industrial action” if a pay offer did not top up school budgets.

National Education Union general secretary Daniel Kebede said: “If they’re not fully funded, then schools will have to make cuts which no parent, no teacher, wants to see.”

He added: “No-one wants to take strike action but of course as a trade union we do stand ready to act industrially if we need to.”

Sir Keir said no decisions had been made on whether to provide the recommended pay increases, saying “we are not at that stage of the process”.

In a plea to NHS staff, the Prime Minister urged health workers not to strike. He said: “If you work with the NHS staff, you get better results than the last government, which just went into battle with them.

“So we have got our doctors and nurses on the front line, not the picket line, and I think everybody appreciates that’s a much better way of doing business.”

He added: “The pay review bodies make their recommendations, which is what they are doing, and then the Government looks at those recommendations, so we are not at that stage of the process.

“Obviously, last year they made recommendations which we were able to honour and I was really pleased, actually, that that gave a much-needed pay rise to our nurses, to our police and to our soldiers.”

Health minister Stephen Kinnock also urged unions not to resort to strikes, saying the Government had to work “within fiscal constraints”.

He said: “We will give these recommendations careful consideration. But I would, of course, also urge our colleagues in the trade union movement to engage constructively with us and recognise the reality of the financial position.”

Last year, the Government accepted the pay review bodies’ recommendations of increases of between 4.75% and 6% in an effort to end long-running strikes across the public sector.