Squeeze on incomes will weaken recovery, TUC warns

A CONSUMER-LED economic recovery this year will be severely undermined as nearly a quarter of the working population suffers a 6 per cent drop in living standards, according to the union movement.

More than 5 million public sector workers, including those in health care, civil service and local authorities, will be hit by both a freeze on pay and April tax rises, the Trades Union Congress said yesterday. This loss in earning power will damage the economy as well as hitting the pockets of those directly effected. 'It will increase the anger and frustration already apparent in many parts of the public sector,' the TUC says.

The union figures assume a zero increase in pay together with a loss of 2.75p in the pound as a result of tax increases contained in last year's two Budgets and a loss of 3.25p because of inflation, based on Treasury estimates. John Monks, general secretary of the TUC, said public sector capital spending had decreased by pounds 600m despite government claims that last year's 1.5 per cent pay policy was necessary to preserve such expenditure.

In 1992 the then Chancellor, Norman Lamont, told the Treasury Select Committee: 'Although we are acting on public sector salaries, we have done this in order to preserve capital projects.'

The Government's own 'Red Book' table on public sector asset creation, the Treasury's widest measure of capital spending, showed a decline from pounds 29.1bn in 1991-92 to pounds 28.5bn in 1992-93.

Mr Monks said that the figures demonstrated the injustice of government strategy. 'Millions of workers are being asked to take a real and serious cut in their standard of living. They were told last year that the pay policy was for the good of services in which they work. The truth is that both jobs and services are being cut and the victims are the public, as well as those who work for them.'