One minister said after a Cabinet meeting yesterday at which the cuts were reviewed: 'It's going to be bloody.' The cuts will mean higher council tax bills, a freeze in some benefits, and a row continues over widening the VAT base. But public sector pay will bear the brunt.
Ministers who were due to give evidence to some public sector pay review bodies were told not to go to the meetings. They were told the meetings would not resume until after the Chancellor's autumn statement on 12 November.
The Cabinet is expected to endorse a pay limit of 2 per cent and to inform the pay review bodies that is all the Government can afford. They will be urged to concentrate on making recommendations on performance-related differentials.
Ministers are braced for an outcry from the public sector pay unions, but the Government was given the backing of 85 Tory MPs from all sides of the party yesterday with a Commons motion calling for capital schemes to be protected.
John Major gave a strong hint at Prime Minister's Questions that the Cabinet would seek to protect construction work as part of the shift towards growth and jobs.
Council tax bills are expected to average pounds 600 per household next year - pounds 200 more than the Government intended - after the Treasury's refusal to give Michael Howard, the Secretary of State for the Environment, an extra pounds 2bn to soften the impact of the tax, which is introduced in April.
John Townend, chairman of the Tory backbench finance committee, said last night that restraining public sector pay would help to reduce the increase in the council tax because pay was one of the biggest items in town hall expenditure.
'Colleagues are worried about the level of the council tax. If we do have a pay freeze or a very low pay round, that would reduce the bills,' Mr Townend said.