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 77.

    Automatic/time based increments in the public sector have created ridiculous distortions. A relative used to work in an team with an inefficient older colleague with much lower skills/qualifications than the younger/newer staff. The older colleague was paid over 25% more despite having a just barely acceptable performance, due to having reached the top band of pay via automatic increments.

  • rate this

    Comment number 76.

    Some jobs in the public sector need incremental pay increases to keep trained & experienced staff coming in to a work-place where they're abused by 'the public'. It's a 'carrot & stick' approach. If you do away with the carrot, then be prepared for large recruitment & training costs, because no-one is going to do the unpleasant tasks for any length of time without being given suitable reward.

  • rate this

    Comment number 75.

    There's no sense to it, this government has gone mad.

    £40 Billion for HS2, something we don't need

    Massive housing shortage

    And years and years of austerity.

    Where is the common sense?

  • rate this

    Comment number 74.

    I am going to change my name to Banks, the government will bail me out then.

  • rate this

    Comment number 73.

    Comment number 10. jenko

    So lets leave them starve Junco 10 ? Sleep well

  • rate this

    Comment number 72.

    "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".

    Meanwhile directors awarded themselves yet another pay rise last year, 10% this time. It's no wonder their words are muffled, what with where they speak from.

  • rate this

    Comment number 71.

    'Local councils would have to make "the kind of sacrifices central government is making" ~ Really Mr Osborne? And exactly how has this been hard for you? I can't afford holidays and I don't get three months off a year in the summer! Exactly what sacrifices have central government been making? And I presume you won't be receiving an annual salary increase either then?!

  • rate this

    Comment number 70.

    Way doesn't the Government simply ask Labour where the money tree is planted ?

  • rate this

    Comment number 69.

    The incremental pay system in public service is simply a system of pay, and not unfair to those in the private sector. Many private sector workers get bonuses and share schemes which public sector generally don't get. A typical local government scale will have four increments....so which is the rate for the job? The bottom point, the top or in between? Osborne's move is intended to reduce pay.

  • rate this

    Comment number 68.

    'There is only so much you can cut from the public sector before it completely breaks down. '
    That's what the Torries want, they've already started privatising the NHS through the back door with serco, I'm just waiting for the G4S/serco/ATOS schools to start appearing.

  • rate this

    Comment number 67.

    Fantasic PMQs and an excellent step. Obviously, nowhere near the real depth of cuts needed but those come later, funny if Labour have to do them. Brilliant to see the unfair public sector perks stripped away and a clever strategy to highlight Labour are mere union puppets, that's why Eds in! Also clever to focus on local govt this time round, everyone knows the waste and greed at this level.

  • rate this

    Comment number 66.

    To be honest the majority of people didn't even watch or listen to it. They will just log onto their account and write some bog standard comment like, "I bet they'll still their bonuses, they are scum". As they repeated numerous times, Labour wrote the checks, Tories have to pick up the bill.

  • rate this

    Comment number 65.

    Can those of you who state the public service workers don't deserve a pay rise please explain where they got their information that they are all too well paid and have golden pensions. COZ I DON'T HAVE EITHER. And I pay into my golden pension. What do you do?

  • rate this

    Comment number 64.

    Wanna save some serious billions you hateful government? ditch this HS2 project. What you take with one hand, you give to another. Where's the saving in that? roll on the next elections!

  • rate this

    Comment number 63.

    The general public would except these cuts in spending if the MP's and Lords cut their expenses and overseas aid. Why is this government borrowing money for oversea aid, they talked about the Labour Party wasting money, this is OUR money and it should be used for the BENEFIT of the People in THIS country. If they can't look after their own citizens get out as they are know use to us.

  • rate this

    Comment number 62.

    Why are we still funding HS2? The savings would cover the cuts that Osborne is after, especially when you consider the costs are likely to continue to rise, until the final bill comes in (just like the Olympics).

  • rate this

    Comment number 61.

    Its about time ! The country is broke and cannot afford to give these rises anymore ! Pathetically....I'm sure plenty will strike....but if the country has no money it cannot afford it !!!!!

  • rate this

    Comment number 60.

    Any worker, regardless of sector who does not receive an annual payrise at the rate of inflation is, in fact, taking an annual pay cut.

    Part of the UK's current economic problems are caused beacuse people are getting paid progressively less each year, & therefore not able to spend to stimulate growth.

    Its a vicious circle.

  • rate this

    Comment number 59.

    Does the Mr Osborne not think when someone is going to loose there job they start to look for work straight away and the reason they sign on straight away is because it can take a long time to sort out. What world does he live in, before the next election I hope to see some politicians that have had a real life.

  • rate this

    Comment number 58.

    Typical of the BBC, headline minor effect on the public service employes. To lose auto hand outs, for time serving, how terrible!

    HS2 farce already needing more thrown at it

    The biggest issue that mystifies me is why all these departments do not make such savings anyway without having to be made to?Normal life is not spending, or doing things more efficiently so you do not waste money.Cut more.


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