Theresa May is to end its five-year public sector pay cap with more than a million workers set to receive a salary increase.

The government announced pay rises of between 1% and 4% for public workers including teachers, armed forces personnel and doctors on the last day of the parliamentary term.

But Labour said the proposed increases still represented a real terms pay cut for workers.

The government’s pay restraint policy has seen a two-year freeze after the Conservative-led coalition came to power in 2010, followed by a 1% annual payrise limit from 2013.

Some teachers will receive a pay increase of 3.5%, prison service workers 2.75% and armed forces 2.9%, all of which will be backdated to the start of the financial year in April.

Separately, more than one million health workers are to receive a pay rise worth 6.5% for most staff over the next three years, after a deal was struck in June.

Members of 13 unions representing hospital cleaners, nurses, security guards, physiotherapists, emergency call handlers, paramedics, midwives, radiographers and other NHS staff across England voted to accept the deal.

The GMB is the only union involved in the NHS which has rejected the offer.

The proposed pay increases will be funded from departmental savings, rather than the Treasury offering new funds, the Sun reported.

It comes after members of the biggest Civil Service union backed strikes over pay but failed to meet a legal threshold on industrial action ballots.

The Public and Commercial Services union said on Monday that 85% of those voting supported strikes in protest at the government’s policy on pay.

It was the the biggest yes vote in the union’s history, but the turnout was 41% – below the 50% threshold.

Peter Dowd MP, Labour’s Shadow Chief Secretary to the Treasury, said the government’s offer “fails to compensate workers for the huge losses in income they have faced under the Tories’ brutal pay restraint policy”.

“An average offer of just 2% per year, and only for some public sector workers according to newspaper reports, will still be a further real terms pay cut.

“The lack of new funding for departments also means pay rises will have to come at the cost of other services, pitting hard-working public servants against those they are working with.”