Rishi Sunak has rejected accusations that his planned public sector pay freeze amounts to a return of austerity and insisted that spending plans to be announced on Wednesday will result in more money for health, education and the police. With trade unions demanding that the chancellor do a last-minute U-turn over his clearly signalled intention to clamp down on the state’s wage bill and refusing to rule out strikes, Sunak said there would be significant increases in spending on public services next year. The Guardian has learned that Sunak’s plans include an additional £151m to tackle rough sleeping and prevent homelessness on top of the £103m that he announced in his March budget. The extra cash to combat the UK’s homeless crisis – along with a reconfirmation of funding for 40 new hospitals, 20,000 additional police officers, the refurbishment of further education colleges and a 10-year school rebuilding programme – will be used by the chancellor to fend off criticism of the public sector wage restraint. Sunak said on Sunday: “This has been a tough year for us all. But we won’t let it get in the way of delivering on our promises – the British people deserve outstanding public services, and we remain committed to delivering their priorities as we put our public services at the heart of our economic renewal.” Also featuring in Wednesday’s package will be: New forecasts showing the economy on course to shrink by more than 10% this year. A public sector pay freeze for all workers outside the NHS. An extra £3bn for the NHS to tackle a backlog in operations caused by the Covid-19 crisis. Confirmation of funding for 50,000 more nurses and 50m additional GP appointments. A cut in the UK aid budget from 0.7% to 0.5% of national income. Plans for a new national infrastructure bank and a northern campus for the Treasury. A warning from the chancellor that the unlimited spending to cope with the twin health and economic emergencies is coming to an end. In a private letter to the chancellor seen by the Guardian, senior leaders from 18 of the country’s biggest unions warned pay controls during the health emergency would damage the economy, hurt frontline workers and cause a staffing crisis. The union chiefs called instead for pay rises to be awarded to recognise the unique role played by public sector staff during the Covid outbreak. The letter says a pay rise is a “matter of justice” for firefighters, teaching assistants, care workers, refuse collectors and other key public sector staff to reward them for their efforts during the crisis. The letter was signed by the leaders of the UK’s three biggest unions – Unison, Unite and the GMB – as well as the NEU teachers’ union and representatives from prisons and healthcare. Asked if about the possibility of going on strike over the issue, the head of the TUC federation of trade unions, Frances O’Grady, refused to rule it out. She told Sky’s Sophy Ridge on Sunday: “I’m really conscious of the feeling out there that governments only seem to recognise the true value of labour when it’s withdrawn ... Nobody can rule anything out at the moment but what I am saying and asking for is that the government stands by key workers, respects the contribution they are continuing to make and recognises that this is absolutely the wrong time to be talking about pay cuts.” Figures from the Centre for Policy Studies, the rightwing thinktank led by Robert Colvile, an author of the 2019 Conservative manifesto, suggest a three-year pay freeze could save a cumulative £23bn for the exchequer, and Sunak did nothing to quash speculation that action was imminent. The chancellor told Ridge: “I can’t comment on future pay policy in advance of the spending review, but what I would say is, when we launched the spending review, I did say to departments that when we think about settlements it would be entirely reasonable to think about those in the context of the wider economic climate. That’s a reasonable thing to do. “Secondly, I think it would be fair to also think about what’s happening with wages, with jobs, with hours across the economy, when we think about what the right thing to do in the public sector is.” Sunak denied this amounted to a return of austerity, which the government has said is over. “You will not see austerity next week,” he said. “What you will see is an increase in the government’s spending on day-to-day public services, quite a significant one, coming on the increase we had last year. So there’s absolutely no way in which anyone can say that’s austerity.” Anneliese Dodds, the shadow chancellor, will say in a speech on Monday : “The British people shouldn’t have to pay the price for a government that doesn’t know the value of public money, splurging it on outsourced contracts to Tory-linked firms that don’t deliver.” In a speech to Reuters, Dodds will add: “The chancellor’s irresponsible choices and unacceptable delays are damaging the economy. That’s why we’re in the grip of a jobs crisis – and it’s got Rishi Sunak’s name all over it.”