Brown calls for cap on public sector pay
The chancellor has called on public sector organisations to limit wage increases to two per cent in a bid to help drive down inflation.
Gordon Brown has written to pay review bodies, who represent about 40 per cent of public sector workers, calling on them to exercise restraint in pay increases this year.
He argues that recent increases in the consumer price index (CPI), which reached an eight-year high of 2.5 per cent in September, are only temporary – caused by rising oil prices – and as such should not form the basis of pay increases.
Mr Brown predicts the baseline inflation rate will return to the Bank of England’s two per cent target within the next two years, and calls on the review bodies to limit pay rises accordingly, warning that a failure to do so could lead to a permanent increase in inflation.
However, public sector union Unison told politics.co.uk that the chancellor was now threatening to reverse the previous policy of pay increases for health sector workers.
“What we’ve said is that we’ve made great strides in recruiting and retaining health workers in the NHS and any attempts to claw that back would be detrimental to the advances we have made,” a spokeswoman said.
Mr Brown is expected to reinforce his argument in a speech to the Institute of Directors (IoD) this evening, when he will stress that “the public sector must play its full part”.
In his letter to review bodies, who set pay for doctors, teachers, the armed forces and some civil servants, he writes: “It will be important to ensure that public sector pay settlements do not contribute to inflationary pressure in the economy.
“To do so would risk turning a temporary increase in inflation into a permanent increase.
“The pay review bodies should therefore base their pay settlements on the achievement of the inflation target of two per cent, rather than on the recent temporary rise in the rate of inflation.”
Public sector wage growth has significantly outstripped increases in the private sector in the last year, due to a high number of pay deals with public sector workers.
The latest government figures show public sector wages grew by 4.1 per cent last year, compared with the 2.5 per cent growth recorded by private sector organisations.
CPI inflation, which is seen as the headline measure of overall price growth, has been above the Bank’s two per cent target for four months in a row.
However, last month, it fell to 2.3 per cent, with the Bank’s latest quarterly inflation report predicting that rates are likely to remain above two per cent in the short-term, but should dip next year before stabilising at two per cent by 2007.
