Public sector pay award could bring more cuts

The Government faces the need to make further cuts in public spending as it emerged yesterday that pay review bodies for 1.4 million public sector workers are expected to recommend inflation-plus rises.

Kenneth Clarke, the Chancellor, has already made clear that he will not make extra money available to meet the awards, which - as in the past three years - will have to be funded out of cuts in services or efficiency improvements.

Some scope for paying the wage rises will come from the tougher targets for cuts in Whitehall "running costs" announced in last month's Budget, but the awards mean further difficult decisions will have to be taken. Mr Clarke had asked the review bodies to keep a "tight regime" on pay.

The five independent review bodies - covering teachers, doctors and dentists, nurses, the armed forces and "top salaries" for judges, civil servants and military chiefs - were reported to have recommended rises at or above the current 3.1 per cent inflation rate.

The proposed awards will be presented to the Prime Minister next month and are likely to be accepted by the Cabinet towards the end of the month. The Government has not rejected pay review body findings for years. But the awards are unlikely to satisfy demands from public sector trade unions, which argue that pay has consistently fallen behind the private sector.

The teaching unions are expected to submit their claim for a 4 per cent rise today, backed by claims that there could be a 30,000 teacher shortage by the end of the decade unless action is taken now. Although Mr Clarke allocated an extra pounds 774m to improve education in the Budget - by relaxing council tax limits to allow local education authorities to raise the money - a 4 per cent rise would absorb almost all the extra.

Gillian Shephard, the Secretary of State for Education - keen to avoid a repeat of last spring's discontent among teachers and parents - has already said there will be no more money available for education and last month she told the teachers' review body she expected it to recommend an "affordable" increase.

But the unions are likely to seize on Treasury forecasts of a 4 per cent rise in average earnings next year, which was the basis of the Government's claim that the Budget would make the average family pounds 9-a-week better off. Most of the pounds 9 figure came from expected earnings growth rather than tax cuts.

The pressure for substantial rises is likely to be even more acute in the health service where there are severe staff shortages in professions such as physiotherapy, occupational therapy and psychology as well as some specialist nurses.