Budget 2015: Four more years of 1% public sector payrises, George Osborne confirms

Chancellor uses first Conservative-only Budget to announce four more years of public sector pay restraint

By matt.foster

08 Jul 2015

Civil servants will have to make do with annual payrises of 1% at most for the next four years, George Osborne has confirmed, as the chancellor set out the first Conservative-only Budget since the 1990s.

Public sector pay was frozen for two years in 2010, with annual rises since 2012 capped at 1%. As he delivered his Budget statement to MPs this afternoon, Osborne said pay restraint would continue for a further four years, citing what he called a “simple trade-off between pay and jobs in many public services”.

“I know there has already been a period of restraint, but we said last autumn that we would need to find commensurate savings in this parliament,” he said.

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“So to ensure we have public services we can afford, and protect more jobs, we will continue recent public sector pay awards with a rise of 1% per year for the next four years.”

That means annual payrises in the public sector are set to remain well below the UK average of 2.7%.

The chancellor’s move has already seen him come under fire from trade unions representing public servants. Dave Penman, general secretary of the FDA union - whose membership is made up of senior officials - said Osborne’s extension of the pay cap would hit public sector morale.

“By restricting public sector pay rises to 1% for a further four years, the chancellor is excluding public servants from the benefits of the economic recovery he spent so much time lauding this afternoon,” Penman said.

He added: "Public servants are being asked to deliver a further £13bn of spending cuts, yet many of them will be taking home less pay than they did in 2010. A further four years of pay restraint will do nothing to help recruit, reward and motivate the greatest asset the Government has: the people who deliver public services. The chancellor said today that ‘Britain deserves a pay rise and Britain is getting a pay rise.’ Unless, of course, you’re a public servant."

The PCS union - whose membership comprises more than 200,000 public sector staff - warned that the last government had already presided over a sharp fall in living standards for civil servants, and attacked Osborne's "hypocritical" plan to cap pay rises at the same time as cutting working tax credits.

The full Budget document published by the Treasury this afternoon also hints at more changes to come on pay and terms, saying the government will use the forthcoming spending review to “examine pay reforms and modernise the terms and conditions of public sector workers”.

“This will include a renewed focus on reforming progression pay, and considering legislation where necessary to achieve the government’s objectives,” the Treasury said.

At his earlier Budget in March, Osborne confirmed that the Treasury had now reached agreement with all departments to end automatic yearly payrises in the civil service - known as progression pay.

PCS General secretary Mark Serwotka said: “Osborne hypocritically talks about cutting tax credits to increase wages while the last government cut living standards for civil servants by up to 20% and he now plans four more years of pay caps."

That sentiment was echoed by Leslie Manasseh, deputy general secretary of the Prospect union, whose membership includes more than 29,000 skilled specialists in the service.

"There is no light at the end of the tunnel for our civil service members when it comes to pay," he said. "Today’s announcement by George Osborne will further undermine the morale of members who have seen a steady erosion of pay in real terms over the last few years."

'Smoother path'

As expected, there were few details in Osborne's Budget on the government's plans for further departmental spending cuts – which are set to be outlined in full at the autumn spending review – but the chancellor did make a significant change to the pace of austerity.

Osborne revealed that his target of achieving an overall budget surplus by 2018/19 would now be shifted to 2019/20. The chancellor that “stronger than forecast” tax receipts, extra savings already achieved by departments in the current year, and the possibility of “faster progress” in returning bailed-out banks to the private sector had made it possible to tread a “smoother path to the same destination”. 

Osborne said he recognised that “a huge amount has already been done to increase efficiency across Whitehall” adding that “no year will see cuts as deep as those required in 2011-12 and 2012-13”. 

According to the independent Office for Budget Responsibility (OBR), the adjusted plans mean provisional departmental spending totals have been increased "significantly" since the Coalition's March budget. The OBR says Real Departmental Expenditure Limits (RDEL)​ have "increased by around 6% in 2016-17, 9% in 2017-18 and 10% in and 2018-19" relative to the totals set out in March.

Osborne did unveil a commitment to raise the Ministry of Defence’s budget by 0.5% a year in real terms, and said the Treasury would be handing funds to the Cabinet Office to allow it to “explore a number of cross-cutting savings proposals” ahead of the wider spending review.

HM Revenue and Customs will meanwhile get £800m of extra investment over the parliament to strengthen its work to tackle tax evasion, Osborne said, with the Treasury stressing that it was “committed to providing HMRC with the funding it needs to maintain its current level of compliance performance, while making efficiencies”.

HM Revenue and Customs will meanwhile get £800m of extra investment over the parliament to strengthen its work to tackle tax evasion, Osborne said, with the Treasury stressing that it was “committed to providing HMRC with the funding it needs to maintain its current level of compliance performance, while making efficiencies”.

Tony Wallace of the Association of Revenue and Customs – a section of the FDA union representing tax officials – welcomed the increased funding. 

"Since 2010 ARC has consistently made the case that an investment in the work of HMRC and ARC members will yield a significant dividend for the country," Wallace said.

"In 2013 our Budget submission suggested an investment of £312m could yield as much as £8.2bn. In June this year I met with David Gauke, financial secretary to the Treasury, and called for £750m to deliver on the Conservative government’s pledge to deliver an additional £5bn from tax avoidance. ARC is delighted that the chancellor has accepted our case."

'More confidence'

The chancellor also used the Budget to outline plans for a new compulsory National Living Wage worth 60% of median earnings by 2020, which will apply to workers aged 25 and above. The move came alongside £12bn-worth of cuts to the UK's welfare budget, including the scrapping of housing benefit for 18 to 21-year-olds, a wider freeze on working-age benefits, and curbs to tax credits. 

On tax, the personal allowance will rise to £11,000 from next year - up from £10,600, while the threshold for the 40p rate will rise to £43,000. And corporation tax will be cut from 20% to 19% in 2017, falling to 18% in 2020. The chancellor said the move would “give business more confidence” to invest in the UK.

Elsewhere, Osborne set out his plan to require governments to run a budget surplus in what he called “normal times”, with the government mandated to run a surplus unless the independent Office for Budget Responsibility deemed GDP growth to be less than 1%. Any government wishing to run a deficit in those circumstances would have to seek the approval of MPs.

“The chancellor of the day will have to set out their plan with clear targets to restore the nation’s finances to health – and this House of Commons will test the credibility of that plan and vote on those targets,” Osborne said. “It is sensible, pragmatic and it keeps Britain secure.”

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