Minister were on a collision course with the unions last night after Alistair Darling announced plans to cap public sector pay rises at 1 per cent from 2011.
The unions protested that teachers, nurses, civil servants, town hall staff and social workers were paying the price for bailing Britain out of the financial crisis. Unions added that the cap amounted to an effective cut in their members' incomes because of forecast levels of inflation.
The Chancellor said the new limit would last two years, saving the Treasury more than £3bn a year. It follows the previously announced 1 per cent limit for the next financial year for those groups of workers not in multi-year deals.
Mr Darling also announced caps on taxpayer contributions to the pensions of teachers, local government workers, National Health Service staff and other civil servants, saving the Treasury £1bn a year.
He said he expected those on the highest salaries to contribute more towards the cost of their retirement.
His announcement means that millions of workers face a squeeze on their pay packets whoever wins the next election.
George Osborne, the shadow Chancellor, has announced that the Tories would impose a one-year pay freeze on public sector staff earning more than £18,000 in 2011.
Brendan Barber, the TUC general secretary, led fury over the Government's planned salary cap, which he condemned as "unfair and inefficient". He said it would damage long-established independent systems for fixing public sector pay.
Mr Barber added: "Public sector workers – many of whom are low paid – should not have to pay the price for a crash they did nothing to cause."
Dave Prentis, general secretary of Unison, hinted at industrial action to defend members' incomes. We have no idea what inflation will be like in 2011 and beyond. Nor do we know what the future price will be of essentials such as food and fuel," he said. "We are on the same side of the street as our members and I won't let them see their living standards eroded."
Paul Kenny, general secretary of the GMB union, added: "Low-paid public sector workers did not create this crisis and it is grossly unfair to single them out for a pay cap that might well be below the inflation rate over the next few years."
The Public and Commercial Services union said the moves would undermine morale and entrench low pay among civil servants, one in five of whom earns less than £15,000. Mark Serwotka, its general secretary, said: "Having experienced over 100,000 job cuts, our members know, as the Government try to outflank the Tories ahead of a general election, that it is false to think that you can cut public spending and protect frontline services."
Mary Bousted, the general secretary of the Association of Teachers and Lecturers, said capping all public sector pay for two years was "too blunt a measure".
"It will affect the majority on low salaries as much as the few who are highly paid and is far too long when even the Government is forecasting inflation will be 3 per cent in two years."
Christine Blower, leader of the National Union of Teachers, was pleased that Ed Balls, the Schools Secretary, was protecting teachers' promised 2.3 per cent pay increase for September 2010.
But she warned: "Any erosion of teachers' pay after that may lead to lower recruitment, which is at odds with the world-class education system the Government always talks about."
Business leaders welcomed the moves as long overdue. Richard Lambert, the CBI director general, said: "We applaud the Government's courage in beginning to tackle the thorny issues of public sector pay and pensions."
Mr Darling also said the senior civil service pay bill would be cut by up to £100m over three years.
Any future appointment to a post commanding a salary of £150,000 or more will have to receive Treasury approval, as will bonus payments worth £50,000.
The Government has already announced a pay freeze in 2010-11 for senior public servants, including quango chiefs, judges, senior NHS managers, hospital consultants and general practitioners.
The view from the marginals: 'Clever stuff, but I'm still deciding who to vote for'
Alan Phillips, in his sixties, has three grown-up children. He has not been affected by the recession, but he has seen NGOs hit by the downturn as the Government has become cautious in giving grants because of the prospect of spending cuts and tying itself to future commitments.
"The pre-Budget statement is clearly part of a well-calculated election campaign. There seem to be no unpopular cuts announced and, cleverly, only increases in public service pay have been cut. The decisions on increases for pensioners, on energy efficiency, the protection of 'front-line services' and a one-year tax on bankers' bonuses are likely to be popular.
"Sadly, long-term proposals to tackle the excesses of the financial institutions that caused the crisis are missing. These institutions should be supporting society and not just looking after themselves. In terms of the election, I think I'll wait and see. It was a very clever presentation by Alistair Darling. It was very well thought through to create divisions that it can benefit from come the election, but I have not decided yet who my vote will go to."
Constituency: Hove; Labour Majority in 2005: 420
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