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Green Budget: Pay Curbs - Brown urges wage restraint to fuel economic growth

Gordon Brown yesterday told pay review bodies covering 1.3 million public service employees that there should be no salary increases without compensating improvements in productivity.

In meetings with the bodies' chairmen before his pre-Budget statement, Mr Brown said the Government could not countenance any wage increases unless they were financed out of existing budgets dictated by the previous administration.

In fresh submissions to the bodies yesterday, he reminded them that there was no public spending round this year and there would be no access to the Government's reserve to fund pay increases which breached last year's expenditure limits.

Although his hardline remarks were made specifically to the chairmen of the pay review bodies, they were also aimed at the five million workers in the public sector as a whole and employers in private industry who may be tempted to increase wages to cope with skill shortages.

Union leaders in the public sector will argue that such a policy inevitably means thousands more job losses if employees are to receive a pay rise.

The Chancellor told the chairmen, who cover employees from army generals and Whitehall mandarins to teachers and nurses, that there would have to be a responsible approach to remuneration.

While not wishing to impinge on the independence of their committees, he said that paying more now would mean that the Bank of England might increase interest rates. The alternative was to exercise "pay responsibility" with the benefit of securing more jobs in future.

"A responsible approach by all those involved in pay bargaining, combined with success of the Government's labour market reforms, would allow the economy to grow faster than would otherwise be possible," a Treasury statement said.

In his speech to the House of Commons, Mr Brown acknowledged short-term pay pressures were building up because of the lack of suitably qualified labour.

"The more that we all take a long-term view of what the economy can afford, the more we will be able to have job creation and keep inflation and interest rates as low as possible. So we must all be long-termists now."

He agreed that the Government's reforms would take time. "But it is in no one's interests if today's pay rise threatens to become tomorrow's mortgage rise. The worst form of short termism would be to pay ourselves more today at the cost of fewer jobs tomorrow and lower living standards in the very near future."

To cope with skill shortages, the Chancellor announced pilot projects under which any employer who took on and trained a young or long-term unemployed person and kept them on, could receive "up-front" 75 per cent of their allocation under the New Deal programme.