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 137.

    The overseas aid buys "influence", but I agree with your point.

  • rate this

    Comment number 136.

    One benfit cut that seems to have been overlooked is the enormous (£40bn+) that goes on income tax relief to private pension pots"

    That will be NOT taking tax off people who contribute to their OWN pensions with their OWN money.

    Since when has NOT taking something off someone been the same as giving them something?

  • rate this

    Comment number 135.

    To those that argue against this - I ask what is wrong with this?

    It is not saying there will be no pay rises, but there will be no automatic annual incremental pay rises.

    If you do a good job, work hard and add value - Im sure you'll progress and get more. If you dont, then this might affect some people whose laziness creates more work for others...

    And how is that bad??

  • rate this

    Comment number 134.

    There is a good deal of nonsense held re the so called automatic public sector pay rises.

    Jobs in the public sector are evaluated and placed on a grade; within a grade there are a number of spinal column points to which the job holder may progress, usually on the basis of an annual review and whilst usually awarded are *not* given as of right.

    Annual pay rises apply across all grades.

  • rate this

    Comment number 133.

    Seems to me more will be made homeless by this.
    Also I think there is more in what he has not said that will matter in time. An early election, keep you guessing, careful speech.

  • rate this

    Comment number 132.

    HS2 £40bn for a project decades away ( which few people want ). Would be better channeled into house building NOW!

  • rate this

    Comment number 131.

    The best Civil servants will leave the CS if they are not rewarded for their work...
    They will then take their experiance to an private firm...
    the CS will realise they can no longer do the work...
    They will Sub-contract the work...
    to the private firm...
    which will charge the a massive premium to do it...

    Talk about long term thinking!!

  • rate this

    Comment number 130.

    Surprised this has not been hit earlier given the growing National Debt.
    Also public sector pensions should change from final salary to money purchase like most people in the private sector.
    Also GPs should work over weekends. Everyone else who earns £100k+ works seven days a week so why shouldn't GPs?

  • rate this

    Comment number 129.

    Pfff I'm gonna have to go to the job centre every week? I'm not happy about that at all.

    It's such a waste of my time going in there every fortnight as it is.

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

    The 'advisers' are useless I pretty much waste a day job hunting having to go in there.

  • rate this

    Comment number 128.

    57.Eezzen "I have suffered 2 pay cuts and pay freezes for 5 years whilst they complain and go on strike at measly pay rises."
    Wow so they should all follow your forelock tugging attitude.
    Tell me, if someone bullied your kids do you tell them to stand up for themselves or do you tell them to make sure all their mates get a punch on the nose as well to make you feel better ?
    Unbelievable !

  • rate this

    Comment number 127.

    Every time George Osborne starts his economic statements with "we're firmly on the road to recovery" and "we will reward work and make work pay." How many are actually convinced by it? It's just the same old, same old and it doesn't provide our country with much confidence for the future. Growth forecasts are downgraded every single time and they say more time is needed to reduce the deficit.

  • rate this

    Comment number 126.

    People need to wake up, voting is just a way of keeping these idiots fat. The people need to tell them, in no uncertain terms, that we want them out. And thats all your lab/con/dem/ukip etc. All are someone elses paymaster (not the voters)

  • rate this

    Comment number 125.

    Recent analysis shows that the Public Sector is paid more than the Private Sector, have far better pensions, more holidays, more days off sick, are less productive and are virtually unsackable in some jobs.

    The Unions have their heads buried in the sand and are just full of dogma and ideaology, fighting the Coalition for fightings sake.

  • rate this

    Comment number 124.

    This disgraceful government is destroying the UK. They need to leave.

    And, no, not replaced by Labour.

    We need an alternative. A party with vision, decency and integrity.

  • rate this

    Comment number 123.

    Con : how many people would agree £40 bn HS2 is a better investment than say 400,000 new homes ?

    Lab : oversaw profligate spending, then criticised every single austerity proposal and now backs the govt's spending programme. How many people would trust Ed + Ed to run the economy ?

  • rate this

    Comment number 122.

    In 2014-15 and as far as I can see into the future I will be voting UKIP.

    The other Big3 cockroach parties will never ever see my vote ...

  • rate this

    Comment number 121.

    It will not get better.
    These further cuts are to make up for this governments shortfall in this parliament., but already 20% of cuts, not included in these ones, was already put off until after the election.
    2015/16 is NOT the last year of austerity, more cuts are planned for 2016 & 2017 & beyond.
    If UK economy does not make up the difference by 2016, then not even the NHS can escape real cuts

  • rate this

    Comment number 120.

    "Most unemployed people will have to visit the job centre every week instead of fortnightly."

    How the heck is this going to improve the unemployment if there are not enough jobs in the first place!? The only jobs increase one will observe is the staff increase in the Job centers, required to deal with the doubling of the number of visits.

  • rate this

    Comment number 119.

    Wonderful News I can almost hear the cheers of the tax - payers now lets get stuck into the Public Sector and get it sorted once and for all. From next week all Public Sector will work until 67 same as everyone else. Also scrap the Pension altogether make em take a private one. Ban Union membership for the Public Sector.. and cut the whole lot of em by at least 50 % get rid of this black-hole now

  • rate this

    Comment number 118.

    Labour created a great deal of wage inequality in the public sector. Encouraging wage reduction in the already lowest paid posts and over paying many at the top. We need to save money, but at the same time make new contracts fairer to the lowest paid and stop with all the over paid and almost city banker style contracts at the top.


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