Spending Review: Public sector to lose automatic rises in pay


Andrew Neil has the headline announcements from George Osborne's Spending Review

Millions of public sector workers face losing automatic annual pay increases as part of an £11.5bn cuts package unveiled by Chancellor George Osborne.

He also announced a cap on total welfare spending and axed winter fuel payments for expatriate pensioners in hot countries from 2015.

Welfare changes mean most unemployed people will have to visit a JobCentre every week instead of fortnightly.

The cuts package will cover a single financial year - 2015-16.

It was forced on the chancellor by slower than expected economic growth and deficit reduction, but he insisted the economy was on the right track, telling MPs: "Britain is moving out of intensive care and moving from rescue to recovery."

But shadow chancellor Ed Balls, for Labour, said the new round of cuts represented a "comprehensive failure" of Mr Osborne's economic strategy.

Other key announcements from the chancellor's statement include:

  • Total annual spending on welfare, including housing benefit, disability benefit, tax credits and pensioner benefits - but excluding the state pension - will be capped for the first time, from April 2015
  • Local government will take the biggest hit, with cuts at the Department for Communities and Local Government of 10%
  • The Home Office must save 6% from its budget, but the police budget will be cut by a lower 4.9% and counter-terror policing will be spared
  • The culture department escapes the worst of the cuts with expected savings of 7%
  • Science and research funding will remain flat
  • The NHS, schools in England and foreign aid will continue to be protected from budget cuts
  • The security services were the biggest winners, with a 3.4% boost to funding and Mr Osborne praising their "heroic" efforts to "protect us and our way of life"

Mr Osborne said the cuts, which will kick in just before the next general election, would ensure Britain "lives within its means", but they would be guided by fairness, economic growth and reform.

Public sector pay rises are frozen at 1% until 2015-16 but Mr Osborne is to scrap so-called progression pay, where civil servants automatically move up through pay grades.

In addition, the Treasury says "substantial reforms" to progression pay will be taken forward, or are already under way, for teachers, the health service, prisons and the police, "ensuring that public sector workers do not receive pay increases purely as a result of time in post".

The armed forces will be excluded from the changes.

Guide to the Spending Review

  • Government departments set out spending for set period
  • George Osborne needs to find £11.5bn in savings
  • The 2015-16 timetable is designed to last a little while beyond the next general election

Mr Osborne told MPs: "Progression pay can at best be described as antiquated; at worst, it's deeply unfair to other parts of the public sector who don't get it, and to the private sector who have to pay for it."

And he announced a tougher regime for jobseekers, saying they will have to visit a JobCentre every week to spend more time with advisers. There will also be a seven-day wait before people can initially claim benefits.

"Those first few days should be spent looking for work, not looking to sign on," said Mr Osborne.

"We're doing these things because we know they help people stay off benefits and help those on benefits get back into work faster."

In a further change, claimants who cannot speak English "will have to attend language courses until they do".

Frozen grants

The "temperature test" for winter fuel allowance will apply to expatriate pensioners living in Portugal, Spain, Greece, France, Gibraltar and Cyprus.

With health, education and aid ring-fenced, all other departments will have to take a bigger hit - average budget cuts for 2015-16 of between 8% and 10%.

Start Quote

This is a chancellor with his eye firmly set on 2015 - not just the year of the next set of spending cuts but of the next general election.”

End Quote

The Department for Communities and Local Government, the Treasury and the Department for Environment, Food and Rural Affairs were among the hardest hit, with 10% budget cuts.

Vince Cable's Department for Business, Innovation & Skills, the last to reach a deal with Mr Osborne after tough negotiations, got off relatively lightly with cuts of 6% and a commitment to keep money for more apprenticeships, but student grants will be frozen.

The Ministry of Defence will face further cuts to its civilian workforce as its budget was maintained in cash terms at £24bn - representing a real-terms cut.

The Department for Transport will be forced to make savings of 9% in day-to-day spending, but will get the largest boost of any department in its capital spending, which rises to £9.5bn in 2015-16.

Mr Osborne also said the government would spend £2m to "look at the case for" a £12bn Crossrail 2 project in London, which is backed by London Mayor Boris Johnson, and announced £3bn more for affordable housing in 2015. Further details of capital spending plans are expected on Thursday.

Start Quote

Looking at what the chancellor has announced today - and the political environment in which he and everyone else in Westminster is now operating - you would have to say that it is... a reflection of the chancellor's political success”

End Quote

Capital spending is down in real terms but is falling at a slower rate than forecast by the previous Labour government, Treasury sources insist.

The chancellor announced that the council tax freeze, due to come to an end next April, would be extended for the next two years. He said that would mean nearly £100 off the average council tax bill for families.

But he warned of 144,000 further public sector job cuts and said local councils would have to make "the kind of sacrifices central government is making".

Sir Merrick Cockell, chairman of the Local Government Association, said further cuts would "stretch essential services to breaking point in many areas".

But he welcomed a plan by Mr Osborne to transfer £2bn from the NHS budget to fund social care, which has been badly hit by council cuts in some areas.

'Out-of-touch chancellor'

Labour has said it will not reverse the spending cuts announced for 2015-16, although it will borrow money to invest in building more houses.

Spending Review Documents

PDF download Spending Round 2013[1.9 MB]

Most computers will open PDF documents automatically, but you may need Adobe Reader

Mr Balls launched a fierce Commons attack on the "out-of-touch chancellor" who, he said, had "failed on living standards, growth and the deficit, and families and businesses are paying the price for his failure".

"If the chancellor continues with his failing economic plan, then it will fall to the next Labour government to turn the economy round and to take the tough decisions to get the deficit down in a fair way," added Mr Balls.

But he struck a more cautious note in a later interview with the BBC, saying he backed English language tests for migrants and would "look at the detail" of the benefit changes, adding: "If it saves money and it works, fine."

He also pledged to study the pay progression proposals to see if it would work out cheaper than performance-related pay, which will be replacing it.

The trade unions reacted angrily to the public sector pay squeeze. Prospect, which represents 34,000 specialist civil servants, said the Spending Review was a "kick in the teeth" for its members.

Deputy general secretary Leslie Manasseh said: "The chancellor obviously isn't aware that his government have scrapped progression for most civil servants already, apart from where it is part of an employee's contractual rights.

"Our members have already put up with two years of pay freezes followed by pay caps alongside pension contribution increases of over 3%. Many members have seen the real value of their pay plummet by up to 15%."

But business lobby group the CBI said the squeeze was "tough but necessary" at a time of tight public finances and it was also "encouraging to see that government will have greater control of the welfare budget through the new cap".

Cuts chart
Cuts chart

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  • rate this

    Comment number 37.

    I am shocked that pensioners who live ABROAD get Winter Fuel Allowance.
    The pensioners who are here should have theirs cut if they have enough money! Government would save money then.

  • rate this

    Comment number 36.

    There is only so much you can cut from the public sector before it completely breaks down. The crisis point has now been reached and before long it will collapse completely. It's now time to make wealthy pensioners contribute more in tax and introuduce other revenue raising measures - how about restoring dog licences?

  • rate this

    Comment number 35.

    In my department we don't have automatic progression up "spine points" - my pay has geuinely been frozen or at 1% for last 4 years.

    I think it is high time all public servants' conditions were aligned.

    I don't dispute teachers do a good job but looking at their "pay scales", a new teacher would have got a £2k pay rise after their first year. How does this fit with a pay freeze for rest of us?

  • rate this

    Comment number 34.

    I see public sector pay freezes don't apply to senior Civil Servants ....nor MP's who are actively looking for a huge pay INCREASE.

    As always those that make the rules look after themselves and those at the bottom pay for it.

    I would have a lot more respect if it was announced that MP's would also have a pay freeze and reduction in the 'benefits' that they get.

    Total Hypocrites.

  • rate this

    Comment number 33.

    Average public sector pay rises are well behind inflation and have been foir years so if they claim it's already 'frozen' then they're being generous.This real freeze at 0% increase will put public sector workers a good 30% down on pre-recession rates by the time this administration gets the boot.

  • rate this

    Comment number 32.

    Sounds good.
    Cut the winter fuel allowance for anyone in this country or in a colder foreign clime if they don't actually need it.
    This is called "common sense" or "fair" in the real world.

  • rate this

    Comment number 31.

    When Osborne says public sector staff, then does he include himself and his bunch of hooligans in it or not ?? When Cameron said we all are in it together I assumed everybody including the MPs. Please Osborne don't make me die in mirth !!

  • rate this

    Comment number 30.

    It was forced on the chancellor by slower than expected economic growth and deficit reduction

    No, it is a direct result of his incompetance of the 1st austerity budget. He should have allocated a proportion of cuts THEN to capital expenditure and a SERIOUS fund for business start ups & new jobs/wealth creation.

    The opportunity is missed, & now we ALL (excluding most wealthy) pay for it.

  • rate this

    Comment number 29.

    Well overdue! Another ridiculous golden nugget for their union paymasters thanks to Labour has now been finally taken away!

    Public sector pay & perks should NEVER be better than private sector. It's high time the golden times of the public sector ended! They should never have been allowed to get so out of control but what do you expect from Labour! The party that brought the country to its knees.

  • rate this

    Comment number 28.

    What 'automatic pay rise'?

    Many public sector workers have had their pay frozen in absolute terms since 2009 - no increments - no cost of living.

    IF this applied to the CEO / Directors etc that would be great - but they have been getting pay rises since 2009 and still will. Set the example from the top please and stop pressurising the masses of poorly paid post room clerks/ admin assistants etc

  • rate this

    Comment number 27.

    5 - Chorley Lass: completely agree. You've got to be fairly silly to expect an unearned pay rise in the 21st century - and even sillier if your an manager who offers it - and if you are that silly (in either case), you shouldn't be playing with public funds. No reasonable - or even moderately sensible - person could have expected this phenomenally silly practice to continue.

  • rate this

    Comment number 26.

    The public sector has for far too long been a gravy train for those employed within it feeling they can not be dismissed for poor performance in line any other job and automatically receive pay rises regardless of results with a good pension at the end it.

    Its about time they lived by everyday rules where they are accountable for their day to day actions and rewarded accordingly.

  • rate this

    Comment number 25.

    If there's one thing for certain about annulling public sector automatic pay increases and that is the public sector is now on a par with the private sector. The latter has some of the most miserable & poorly paid conditions to work under. Exceptions to this, obviously but now you know why many avoid working for a fools paradise just to try to earn what was until today modest though stable money.

  • rate this

    Comment number 24.

    #12 - Public sector have pay grades and within grades have increments.

    each year you go up an increment until you reach the top.

    Even though increments have not increased, moving up the increments means you earn more. Anyone else would accept this was a pay rise but not, it seems, the public sector.

  • rate this

    Comment number 23.

    //NHS budget in England to rise by 0.01% to £110bn\\ - somehow this translates to a 'real terms' increase.

    With inflation at around 3%, why isn't this actually a significant cut, BBC?


    Smoke & mirrors, again.

  • rate this

    Comment number 22.

    I really don't see how anyone can expect an automatic pay rise so i'm glad to see this go.

    Your pay should be based on your work and pretty much nothing else.

  • rate this

    Comment number 21.

    "If the chancellor continues with his failing economic plan, then it will fall to the next Labour government to turn the economy round and to take the tough decisions to get the deficit down in a fair way," added Mr Balls.

    The bare-faced hypocrisy of this idiotic fool never ceases to amaze me.

  • rate this

    Comment number 20.

    First comments prove the need to ringfence education!

  • rate this

    Comment number 19.

    I see the rabid right are first to comment.
    Empty your own bins, put your own fires out, catch your own criminals, look after your own elderly and disabled, repair your own roads etc, etc. I am sick of the Public Sector bashing, once again this terrible Government are blaming everyone who provides a service because it 'DOESN'T MAKE MONEY' for private sectors shareholders. It is a Public Service

  • rate this

    Comment number 18.

    Got to cut welfare. It is too high a proportion of govt spending. No one I know on a higher than average household income has more than 2 children. Coincidence? No. There is such a thing as making a responsible decision, and considering not only what you can afford now, but what it's reasonable to make others fund if you fall on hard times.


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