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 97.

    18 Minutes ago

    First time ever I get first comment!"

    Last time I checked, 1 came before 2.

  • rate this

    Comment number 96.

    we need to tackle the ridiculous pension liability in the public sector. Police officers retiring at as early as 48 with 2/3 final salary pensions and lump sums and with a bit of brown nosing a pay rise or two just before they retire. Its theft on a grand scale - the country is broke and needs to cut its cloth accordingly.

  • rate this

    Comment number 95.

    After 20 years of employment in IT, I recently claimed JSA.

    Foolishly, I thought the JobCentre would offer help and support. Alas, no! For them, it's simply a case of ticking boxes and getting people like me off the official figures.

    These further changes to JSA reinforce the hectoring approach to those who lose their jobs.

    Luckily, I'm able to sign-off and search for work independently .

  • rate this

    Comment number 94.

    Public sector gravy train is gradually but all too slowly coming in to line with reality. It's pensions are still unaffordable and rediculously expensive and there's still a load of non-jobs and highly paid beaurocrats out there in council/NHS land, so keep the cuts coming. A private sector resurgance is the only sustainable route to sanity - long may it continue!!

  • rate this

    Comment number 93.


    I agree with my namesake, stop HS2 now and save 40+ Billion, its not a necessity , with all the developments in new technology.

  • rate this

    Comment number 92.

    My parents retired to Spain.

    At 1500 feet up they are likely to face cool if not cold weather from November through to February, Just 20km down the road and higher up than them there has not been a winter in living memory that has not resulted in residents being snowed in,

    Furthermore, houses in Spain are built for hot summers not cold winters as a result they can be freezing in winter

  • rate this

    Comment number 91.


    People should only be paid more each year, in the same job, if they merit the increase?

    Perish the thought!!!

    No, it is much better to reward mediocrity, which is the mantra of the left, and to make as many people as possible dependent upon the State, and thus trapped into voting Labour at each election.

  • rate this

    Comment number 90.

    Just how bad value for money the public sector is is demonstrated by when a service is privatised, a commercial company can provide the same service (sometimes just as bad but in most cases better) as the public sector for a lot less & make a profit.

    I think public sector directors And MP's) need to go back to school and understand economics, business and maths before asking for larger budgets!!!

  • rate this

    Comment number 89.

    Once again the axe falls on the poorest and those needed most by society, nurses, teachers, policemen etc. Nothing happens about tax avoiders or the excessive amounts of "perks" received by MPs at tax payers expense. Mr Osborne why do you expect me, a pensioner to subside your lunch, your after work drinks etc.

  • rate this

    Comment number 88.

    How have the Dept of Cult/Med/Sport got away with no cuts so far? I suppose it was all that money that went on the Olympics - seems rather silly now. I see they are being cut hard now - too right, we shouldn't be wasting any more in this area.

  • rate this

    Comment number 87.

    I would react more positively to these cuts if spending on Foreign Aid was cut as well, Charity begins at Home.

  • rate this

    Comment number 86.

    Not brave enough and too far out.

  • rate this

    Comment number 85.

    A lot of financial investment in the cost of monitoring unemployment? Wouldn't it be better to offer guaranteed community work, to create a minimum wage benefit/labour exchange?

  • rate this

    Comment number 84.

    Sadly, these further austerity measures would be unnecessary had Labour, under Brown and Balls, not made such an unmitigated mess of the nation's finances and squandered so much of them on social security by handing to people what they had never been entitled to before.

    If some think life's tough, just wait until the first tranche of interest rate rises kicks in.

  • rate this

    Comment number 83.

    For those seeking to link performance to pay, until recently I worked for a FTSE 100 firm that used a performance-linked pay scheme to effectively freeze wages, achieved by deliberately setting virtually impossible targets! In fact, the last amendment they made to the scheme, more people would be worse off under it than they were before.
    Whoever sets pay does it for their advantage only.

  • rate this

    Comment number 82.

    "What do you do?"

    I pay your wages. Join the real world.

  • rate this

    Comment number 81.

    All I hear today is overseas aid ie why do we give India 100s of millions yet they have their own space programme , Nuclear weapons, pay next to nothing income tax , corruption is a way of life plus if our Prime minister visits they slag us off as colony bullies. Trust me this is what is turning people off to politics

  • rate this

    Comment number 80.

    I am a public sector worker & I haven't had a pay rise in OVER 4 years. I will not be receiving a gold plated pension when I retire either. I work 12 hour shifts 365 days; Not all PS workers earn a fortune; My husband is unemployed & receives no benefits & has to pay his prescription charges for his heart condition; My son is working part-time, thus no reduction in council tax = WE'RE BROKE

  • rate this

    Comment number 79.

    It's about time they started to haul in the Public sector gravy train and pay a few of them off, and the Idea of making all migrants Learn English is a step in the right direction.

    Sadly I fear he will give in at the first whiff of EU interference when they "Non" to that idea.

    Go for it George...

  • rate this

    Comment number 78.

    Back in the 80's you had to sign on every week, I remember it well. And whilst you can put in a claim for JSA as soon as you become unemployed you don't actually get any £s for weeks until they've seen you F2F so that change is a nonsense and anyone with any sense is applying for jobs straight away!!


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