Freeze public-sector pay, says spending watchdog

The head of Britain's spending watchdog lays bare the damage the recession has done to state finances with a bleak warning that a pay freeze should be imposed on Britain's six million public-sector workers.

In the face of the bitter political row over how the economy can recover, Steve Bundred also accuses party leaders of failing to be honest about the need for cuts, even in front-line services such as health and education.

In an article for The Observer, the chief executive of the Audit Commission complains that no politician has included "severe pay restraint" among the measures needed to haul the country out of recession. Instead, he warns that "nothing should be off limits".

The grim forecast comes amid reports that civil servants are preparing devastating spending cuts across Whitehall, even as senior politicians refuse to acknowledge the scale of reductions that will be required. The Sunday Times claimed that mandarins had drawn up secret "doomsday" plans for 20 per cent cuts in public spending.

Labour rebels will this week seek to take advantage of rising concerns over the black hole at the heart of the public finances, by plunging Gordon Brown back into the damaging row over the abolition of the 10p tax rate.

A group of backbenchers, led by former minister Frank Field, have launched a fresh protest against the decision to abolish the tax, insisting that it should not go ahead until all low-paid workers who lost out are compensated. The proposed Finance Bill amendment, which would stop the levying of income taxes unless the Government agrees to pay full compensation, could scupper the entire Budget. Chancellor Alistair Darling headed off protests last year with a £2.7bn package for the losers. But more than 30 Labour MPs now demand full compensation for all affected.