Government Employees to Receive 85% Increase in House Rent Allowance – Major Relief Approved for Grades 1 to 22
Islamabad (October 2025): The federal government has officially announced a massive 85% increase in the house rent allowance (HRA) for all government employees — a long-awaited move that will bring significant financial relief amid rising inflation and housing costs across Pakistan.
The decision, approved by the Ministry of Finance, applies to all employees from Grade 1 to Grade 22, covering both permanent and contract staff. The summary for implementation has been sent to the Federal Cabinet for final approval, and once ratified, the new allowance will be implemented across all federal departments.
What’s New: 85% Increase in House Rent Allowance
The Finance Division confirmed that the new allowance will now be calculated based on the current basic salary, instead of the outdated 2008 pay scale system previously used for housing benefits.
This update marks a major policy reform, ensuring fair compensation that better reflects today’s cost of living.
“This decision is a crucial step to help government employees manage increasing rental expenses and inflationary pressures,” a senior finance official stated.
Under the new system, employees from lower grades, especially those in urban areas, are expected to benefit the most, as their existing allowances had become insufficient due to years of rising housing prices.
Key Highlights of the New Allowance Policy
| Category | Details |
|---|---|
| Type of Allowance | House Rent Allowance (HRA) |
| Increase Approved | 85% hike |
| Eligible Grades | Grade 1 to Grade 22 |
| Beneficiaries | Both permanent and contract employees |
| Based On | Current basic pay (replacing 2008 base) |
| Approval Status | Finance Ministry approved, pending Federal Cabinet endorsement |
Why This Increase Matters
For over a decade, government employees have been receiving housing benefits based on salary structures from 2008, which did not account for inflation or skyrocketing rental costs.
The outdated system left thousands struggling to afford decent accommodation, especially in major cities like Islamabad, Lahore, and Karachi.
The new increase aligns housing benefits with the real economic environment, helping employees maintain financial stability and focus on productivity rather than personal financial stress.
Impact on Employees Across Grades
1. Lower and Middle-Grade Employees (BPS 1–16)
Employees in these grades will experience the most substantial impact, as rent expenses often consumed a large portion of their income. The 85% hike will help cover real living costs more effectively.
2. Senior Officers (BPS 17–22)
Higher-grade officers will also see an improved allowance, aligning their benefits with modern pay structures and helping address discrepancies that existed between different departments.
3. Contract and Adhoc Employees
Unlike past revisions, this increase will also include contractual and project-based employees, ensuring inclusivity and fair treatment across all government divisions.
Shift from the 2008 Pay Base – A Historic Correction
The government’s decision to move away from the 2008 basic pay scale represents a long-overdue reform.
Experts have often criticized this outdated model, noting that housing allowances based on 17-year-old salary figures had lost real-world relevance.
By linking the new allowance directly to current basic salaries, the government is modernizing compensation structures and providing long-term financial sustainability for public servants.
When Will the New Allowance Take Effect?
According to sources in the Finance Ministry, the summary has already been submitted to the Federal Cabinet, and final approval is expected within this month.
Once ratified, revised payslips reflecting the updated house rent allowance will likely be issued in November 2025 salaries.
The ministry has also directed all relevant departments to update payroll systems and ensure smooth implementation without delays.
Reactions from Government Employees
Public sector unions and employees have welcomed the decision, calling it a “positive and much-needed step” toward improving living conditions for government workers.
“For years, we’ve been demanding a fair revision in housing allowances. This increase shows that the government recognizes our challenges,” said a spokesperson for a federal employees’ union.
Many hope this revision will be followed by further reforms in medical and conveyance allowances, aligning them with current inflation levels.
Broader Economic Context
The announcement comes at a time when Pakistan’s inflation rate remains high, particularly in urban housing markets.
Rental prices have surged by over 50% in major cities over the last three years, severely impacting middle-class households.
By increasing allowances, the government aims to support employee morale, reduce financial burden, and boost consumer confidence across sectors.
Key Benefits of the 85% House Rent Allowance Increase
- Significant boost in monthly take-home salary
- Relief for employees facing high rental costs
- Inclusion of both permanent and contract workers
- Fair and updated calculation based on current pay
- Long-awaited correction to outdated 2008 base system
Final Thoughts
The 85% increase in house rent allowance marks one of the most impactful government relief measures of 2025 for public sector employees.
It demonstrates the government’s commitment to addressing inflation, improving living standards, and modernizing salary structures for Pakistan’s workforce.
With final cabinet approval expected soon, this update is set to bring real financial relief to thousands of families — a much-needed step toward economic stability and employee well-being.
