Jeremy Hunt has told MPs the NHS pay cap has been scrapped, but was unable to rule out cutting health services to fund rises above 1%.
The Health Secretary said it was recognised the cap "wasn't sustainable" for the future, adding he was hoping for a "win-win" result after confirming he has been given the leeway to conduct "more flexible negotiations" next year.
But Mr Hunt said the "latitude" provided to him by Chancellor Philip Hammond was partly linked to "productivity improvements" which will be negotiated at the same time.
Labour MP Marsha de Cordova (Battersea) told Mr Hunt that lifting the cap on health workers' pay would be in the best interests of patients.
She said: "Hospital wards and GP surgeries are chronically understaffed and the knock-on effect are the waiting lists, which are spiralling out of control.
"Isn't it in the best interests of patients that the pay cap is scrapped so the NHS can run with the relevant number of staff in place?"
Speaking in the Commons, Mr Hunt replied: "I can give you good news - the pay cap has been scrapped."
Labour's Helen Jones (Warrington North) asked if cuts in services would be required to fund pay rises above the cap - something Mr Hunt said he could not answer at the moment.
Ms Jones said: "If nurses or other NHS staff are awarded a pay rise above the current pay cap, will the Government fully fund that pay rise or will they require it to be met by cuts in services to patients?"
Mr Hunt replied: "Well that is something I can't answer right now because the latitude that the Chancellor has given me in terms of negotiating future pay rises is partly linked to productivity improvements that we will negotiate at the same time.
"But the fact is we do have that flexibility and I hope we can get a win-win as a result."
Labour successfully moved a non-binding motion last month calling for the scrapping of the pay cap for NHS workers.
The motion attracted support from the DUP although no formal vote was pushed, which enabled the Tories to avoid the embarrassment of seeing their minority administration allies walking through the lobbies in support of Labour.
Mr Hunt, in response to Labour MP Christian Matheson (City of Chester), earlier said: "Without pay restraint we wouldn't have 11,300 more doctors in the NHS, 11,300 more nurses in our wards.
"But you will be aware that we recognise it wasn't sustainable to carry on with the 1% going forward and that's why next year we've been given the leeway to have more flexible negotiations."
Shadow health secretary Jon Ashworth, in a statement made outside the Commons, said: "It looks like hospitals will be forced to cut other services to find the funds.
"Jeremy Hunt is trying to face both ways on NHS pay and it just means even more uncertainty.
"While the Government dithers, staff continue to leave the NHS and patients continue to be at risk from short-staffed services.
"There has still been no confirmation of any of this from the Treasury.
"The Government needs to immediately confirm that extra funding will be provided to lift the NHS pay cap so that all staff can benefit from a long overdue pay rise."
Jon Skewes, director for policy, communications and employment relations at the Royal College of Midwives, welcomed the announcement but said it "cannot be another empty promise" from Mr Hunt.
He said in a statement: "The Government must commit to fully funding a real-terms pay increase for midwives and NHS staff.
"Anything less will fundamentally damage employment relations in the NHS and will add to the already rock-bottom NHS morale."
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