Brown wants Whitehall cuts of 'at least' 2.5 per cent a year

Gordon Brown unveiled plans for fresh cuts in Whitehall costs and a cap on public sector pay yesterday in a sign that he is determined to keep a lid on public spending.

The Chancellor said government departments would cut costs by "at least" 2.5 per cent a year from 2009 to 2012.

This tightens the screw, in effect, on government departments that had to find 2.5 per cent annual savings between 2006 and 2008. Mr Brown also called for a 2 per cent cap, in effect, on public sector pay rises to help keep inflation under control.

Unions attacked the plans, saying the Gershon cuts had already led to a deterioration in provision of public services.

A spokesman for the Public and Commercial Services Union said: "We are extremely fearful of the impact it will have on key services. The Chancellor may not realise he is driving down pay for some civil servants who earn only slightly above the minimum wage."

He also said the Gershon review and the Chancellor had both said further cuts above the 2.5 per cent limit would harm services.

The Treasury outlined the cuts in a report published yesterday to pave the way for the next Comprehensive Spending Review that will cover 2008 to 2011.

The Chancellor said cuts in administration costs would be used to invest in education, health and law and order. Mr Brown told MPs: "Administrative budgets which have already been frozen will now be cut not only in real terms but in cash terms, releasing extra resources for frontline services. These administrative savings make possible improvements in service."

The Department for Work and Pensions, Treasury, Cabinet Office and HM Revenue & Customs must make 5 per cent cuts, amounting to a 20 per cent real-terms decrease over five years. The Home Office budget has also been frozen. All other departments must make efficiency savings of 2.5 per cent.

Meanwhile, in guidance for Pay Review Bodies, Mr Brown said: "It will be important to remain vigilant to the risk that public sector pay increases do not contribute to the inflationary pressure in the economy going forwards."

Unions interpreted this as a 2 per cent cap on pay, while opposition politicians said the report failed to explain how the savings would be found.

The Treasury said that by the end of March 2006, departments had already reported annual efficiency gains totalling £9.8bn against a target of more than £20bn by 2007-08.