Yes, Factor, I see your point. I misunderstood that.
In general line managers in organisations that are not owner/director do not have the authority to agree salary increases, so my main point stands.
But it is pretty crass claiming the job is now temporary - I think that may be a poorly-designed tactic employed to persuade you to back-off. No-one is going to exchange a permanent job at Grade 4 with 7 years at it for a Grade 5 temporary job - not without if having been properly-explained what the risks could be. That didn't happen.
See what your super Union chappy/chappess has to say, then.