Chancellor announces 1% cap on public sector pay rises from 2011 despite calls for a freeze to protect jobs

Public sector pay rises will be capped at 1% for two years from 2011, the chancellor has announced in the Pre-Budget Report.

Alistair Darling ignored calls from employer groups, including the Chartered Institute of Personnel and Development, for public sector pay to be frozen to protect jobs, but instead announced that pay in local and central government could still rise by up to 1% from 2011.

The announcement of continued pay increases in the public sector is likely to anger many in the private sector who have experienced pay freezes in 2009.

Public sector pensions, like pay awards, would also be capped, Darling announced.

From 2012, state pension contributions for teachers, local government, NHS and civil service workers will be capped in a bid to save £1bn. Those earning more than £100,000 will also be forced to pay more towards their pensions.

Darling said: “By 2012 contributions by the state to public service pensions for teachers, local government, NHS and Civil Service will be capped, which will save around £1bn a year.

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

In a measure to control government pay, the chancellor also announced that the Treasury will be required to approve all public sector appointments on salaries greater than £150,000 per year and any bonuses over £50,000.

Other Pre-Budget Report announcements…

  • The 1p rise in corporation tax will be postponed
  • Economic growth will resume in 2010, with GDP rising by between 1% and 1.5% over the course of the year.
  • The budget deficit for 2009 stands at £178bn
  • The Enterprise Finance Guarantee scheme;– which increases availability of credit to businesses, and which was due to be closed in March 2010;– will now be extended by 12 months.
  • The ‘Time to Pay’ tax scheme will be extended “for as long as it is needed”.

Meanwhile, Darling devoted much of the Pre-Budget Report to measures aimed at easing unemployment.

The chancellor announced unemployed 18-24-year-olds will be given access to jobs and training under the government’s Job Guarantee scheme after just six months, rather than having to stay unemployed for a year to receive the support, as the scheme currently demands.

Darling said: “From next month, no-one under 24 needs to be unemployed for longer than six months before being guaranteed employment or training.”

The education and training guarantee for 16 and 17-year-olds would also be extended for another year, he added.

The chancellor also announced that financial support would be given to 10,000 low-income undergraduates to help them afford to take internships to improve their long-term job prospects.

But Darling said it was not just the young unemployed who needed specialist help. He also pledged that the over-50s would “receive specialist support to help them find a job”.

Darling did not, however, outline what this support would include or how much money would be set aside to finance this.

He added steps would also be taken to make it easier for older workers to stay in employment on a part-time basis after they have reached retirement age. To do this the government will reduce the number of hours they need to work to be eligible for tax credits.

Also, the basic state pension will also rise by 2.5% in 2010.

To encourage employment in Teeside, where Corus recently announced it would be cutting 1,700 jobs, Darling re-iterated Mandelson’s pledge yesterday to provide the area with £30m in funding to promote jobs.

“Unemployment can never be a price worth paying,” Darling said.

The chancellor revealed that these measures to support employment for the young and old would be funded through a 50% tax on individual bankers’ discretionary bonuses over £25,000.

This tax he said would be paid by the bank, not the individual, but high paid staff will continue to pay tax at the higher rate on any bonuses they receive.

“This levy will yield £0.5bn and this money will fund help for the young and older people to get back into work,” Darling said.

The government will stick with current public spending plans for next year, but once recovery is more certain (which is expected to be 2011) public spending will be reduced, the chancellor added.

Meanwhile, £5bn in public sector savings will be achieved by scaling back spending programmes including the cutting of major IT projects, reforming legal aid and outsourcing prison management.

National insurance contributions for employers and employees will rise a further 0.5% from October 2011, and VAT will return to 17.5% in January.

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