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 1877.

    When are the Politicians and Financiers who created this whole sorry mess going to be prosecuted?
    The BBC refuses to ask what have MPs actually cut back on? Have expenses been reduced, are they still claiming for food and getting their holidays cheap through all party group outings?
    Have they downsized?

  • rate this

    Comment number 1876.

    My wife once worked in the public sector and was on a guaranteed winner. A increment pay increase because of some 'banding' arrangement plus a union that would 'force' another deal on top of that.
    Without changing our jobs, in 15 years she went from earning 25% less than me to earning 20% more.
    Public sector V Private sector. Different worlds.

  • rate this

    Comment number 1875.

    Titan - obviously, you have not read or understood one thing - Civil Servants and Public Servants do not get automatic pay rises. They start at pay below the rate for the job and receive, where it is allowed or criteria met increments to get them to the rate for the job. Once there, that's you get no more.

  • rate this

    Comment number 1874.

    Public sector workers have had it so good, for so long, at others' expense, that they moan because they can't ever remember life being hard!

    Wake-up and smell the coffee!

  • rate this

    Comment number 1873.


    Don't you dare purport to speak for me on this.

    Just because you don't seem to care, one iota, about the plight of others in need, it doesn't mean that we are all like you!

  • rate this

    Comment number 1872.

    It's typical of Great Britain that bankers, politicians and CEO's are getting huge increases to their salaries and will benefit from the millionaire's tax cut whilst ordinary nurses, teachers and the police have their pay-packets docked and their pensions robbed.

    Oh, and now the Queen is also getting a 5% pay rise.

    All in it together? I think not...

  • rate this

    Comment number 1871.

    It is very interesting Spending Review: Public sector to lose automatic rises when compared with the same days news:

    I am also pleased to recall David Camerons's statement:
    "We are all in this together"

    HS2 to cost 10 Bn more than first thought.


  • Comment number 1870.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 1869.

    Spending reviews are important, but perhaps we should be focusing on getting these corporations to pay their billion pound taxes first?
    Of course, the problem here is that you need some pretty good finically minded people in the Bank of England for that to happen but there are none because these big businesses pay far better than the government.

  • rate this

    Comment number 1868.

    Alt.economy.soc.uk. Fiddling around the peripherals will not make the difference. Bite the bullet.

  • rate this

    Comment number 1867.

    Shame we only have the Pink Tories as an opposition to the shower in government. Hobson's Choice.

  • rate this

    Comment number 1866.

    Indeed Daniel. we will get to the point where only 5% of people vote and we are ruled by the results of such an election and "they" know that!?! WE are basically already in a police/totalitarian state but because we have our TV's and food etc most "plebs" don't even realise or care. they're "alright Jack" and the rulers know they won't rise up because of that. Ban football and it may be different!

  • rate this

    Comment number 1865.

    The Budget Deficit is falling by every estimation bar the bizarrely titled Banking Industry "Office for Budget Responsibility". The Pension Deficit is double the Sovereign Deficit, and 0% Interest Rates are making it worse. We're getting a bit of Capital Expenditure, supposedly to boost the Construction Industry, but we're not getting much recruitment. Oh, and thanks for the Chastisement.

  • rate this

    Comment number 1864.

    1849 - having awarded themselves 90% of the increase in wealth since 1990, the rich will run away. You think changing the tax laws isn't possible?

    1851 - we lower the business taxes, then someone else does. Race to the bottome. What was cameron saying about cutting tax avoidance?

  • rate this

    Comment number 1863.

    @1858- Yes it's because of all the foreigners that we are in this mess. For example, the Wall Street bankers and their sub-prime mortgages, some how I don't get the feeling that is who your'e meaning. Please right me if I'm wrong.

  • rate this

    Comment number 1862.

    Exactly my point, there is no difference between parties and both are comparably incompetent.
    Yet we must vote for labour or conservative or the whole system collapses.
    Hence the disinterest in politics in my generation, we know it is absolutely pointless to vote. What does voting accomplish?

  • rate this

    Comment number 1861.

    @1851 - agreed

    @1855 - Lab or Con, at the moment anyone "with a pair" would be a welcome alternative. Lets have some politicians who've had proper jobs, lived in the real world and not just these career ones who've been elevated to their positions by their network of cronies and absent of any independent thought or vision!

  • rate this

    Comment number 1860.

    Daniel 1856. so you still think there actually is a multi party system?
    Wake up and smell the coffee. All the parties that have the remotest chance of winning power read from the same agenda. Our "democracy" is just a facade....

  • rate this

    Comment number 1859.

    The country is in ruin and Osborne has working people at each others throats about who is getting the most scraps from the big table. What an Eton Mess.

  • rate this

    Comment number 1858.

    Foreign Aid protected? Welfare not. Charity certainly doesn’t begin at home then. Send money overseas to help “foreigners” get to the UK and then help them out again, and again.


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