Spending watchdog urges public sector pay freeze

LONDON Mon Jul 6, 2009 10:29am BST

Undated file photo of workers.

Undated file photo of workers.

Related Topics

LONDON (Reuters) - A pay freeze for six million public sector workers would be one of the least painful ways of rebalancing the public finances, the head of the country's independent spending watchdog said on Sunday.

Steve Bundred, chief executive of the Audit Commission, criticised politicians for failing to be honest about the need for cutbacks and said health and education should not be excluded.

"At a time when inflation is likely to be between 2 percent and 3 percent, a pain-free way of cutting public spending would be to freeze public sector pay," he wrote in the Observer newspaper.

The public deficit is forecast to reach 175 billion pounds this year, more than 12 percent of gross domestic product.

In an interview on Sky television, Finance Minister Alistair Darling did not rule out a pay freeze and said the government would be looking at wage settlements over the next few weeks.

"Public sector pay obviously has got to reflect prevailing conditions, and in particular inflation has come way down," Darling told Sky.

"And of course we have got to be fair with regard to people who work in the private sector, many of whom have seen their pay conditions somewhere near freeze."

ELECTION PRESSURE

With an election less than a year away, debate over how to curb the deficit has become a hot political issue.

Prime Minister Gordon Brown's Labour government, trailing in opinion polls, says the opposition Conservatives would make big cuts in public services. The Conservatives accuse the government of playing fast and loose with the public finances but have pledged to protect frontline services in schools and hospitals.

The Audit Commission chief said the real choice at the next election was on the balance to be struck between tax rises and spending cuts, and where they should fall.

"First, let's dismiss the notion that the choice facing voters next year will be between cuts and investment in public services," Bundred said.

"Both parties know that savings are necessary and they may need to be greater than the mooted 10 percent of current spending levels."

The government is hoping the country will pull out of its deepest recession in 50 years by the end of the year, boosting voters' morale and making the budgetary arithmetic slightly easier.

Bundred said the government would struggle to meet its borrowing targets even if the economy did pick up.

Public borrowing has exceeded the government's target for most of the past decade and is now running at its highest level since World War Two. Analysts fear further deterioration in fiscal credibility could push up debt servicing costs.

A report in the Sunday Times said senior civil servants were drawing up secret "doomsday" plans for 20 percent cuts in public spending amid fears that politicians were failing to tackle the deficit.

Bundred said health and education workers should not be exempt from the austerity measures, particularly as they had done well over the past decade.

"Don't believe the shroud wavers who tell you grannies will die and children will starve if spending is cut. They won't," he said. "Cuts are inevitable and perfectly manageable."

(Editing by Elizabeth Fullerton)

FILED UNDER: