· News

Pre-Budget Report: pay and pensions to be targeted in public-sector spending cuts

The Government will cut public-sector spending by focusing on public-sector pay and pensions.

In today's Pre-Budget Report the chancellor of the Exchequer, Alistair Darling, said: "Public pensions need to be broadly in line with those offered in the private sector so by 2012 contributions by the state to public service pensions for teachers, local government, NHS and the civil service will be capped - saving around £1 billion a year.

"Public-sector workers will make a greater contribution to the increasing value of pensions, with those earning over £100,000 paying more."

He added: "Public-sector pay makes up around half of departmental spending. The senior civil service will take the lead with a cut in its pay bill of up to £100 million over three years. And any new Government appointment over £150,000 and all bonuses over £50,000 will require explicit approval by the Treasury.

"I can announce that, for the two years, from 2011, we will seek to ensure that all public- sector pay settlements be capped at 1%. As with previous pay decisions, we will recognise the special circumstances of the armed forces.

The chancellor hopes the Government can save £12 billion from greater efficiency in the public sector, £5 billion from scaling back or cutting lower priorities, and £4.5 billion from reducing the cost of public-sector pay and pensions. 

His announcement follows a similar statement from the prime minister, Gordon Brown, on Monday, when he said overpaid public-sector workers would be "named and shamed" in efforts to deliver more value for the public sector.

Chris Johnson, a principal at Mercer, is an expert in public sector remuneration and pensions. He told HR magazine: "There is a need to make changes to public-sector pay. The Government is rumoured to have been considering Treasury approval for high earners' salaries and public disclosure of high salaries in the public sector.

"The chancellor missed an opportunity to manage senior civil servants' pay in the last Budget and the need is still there to cut pay costs."

But he added: "Although there needs to be pay cuts in the public sector, staff in the sector have a big challenge to deliver with a reduced budget. The sector [still] needs to attract talent. Big pay cuts are in no one's best interest - not the public sector and not the taxpayer.

Anthony Evans, assistant professor of economics at ESCP Business School, told HR magazine: "Public-sector costs are too high and there needs to be something done around pay. But I think this is a token gesture in reducing allowances and salaries."

But Paul Spindler a partner at Kingston Smith, added: "There is an election coming up and the chancellor needs to keep people happy. But spending is out of control in the public sector and there must be a pay freeze."