Chancellor calls for 2% limit on public sector pay rises

Chancellor Gordon Brown has called for a 2% limit on public sector review body pay awards, to avoid exerting upward inflationary pressure on the economy.

In a letter to the pay review body chairs, who set annual pay rises for thousands of public sector workers, Brown said that settlements should be based on “the achievement of the inflation target of 2%, rather than on the recent temporary rise in the rate of inflation”.

He acknowledged that recent fluctuations in oil prices have resulted in increases to the consumer prices index (CPI) inflation rate.

But he argued that these effects are temporary, as indicated by the decline in CPI inflation recorded in October (to 2.3%, down from 2.5% one month previously). The latest Bank of England report forecasts a fall back to just below the 2% target in 2006.

Brown’s letter calls for restraint in settlements so as not to “risk converting a temporary increase in inflation into a permanent increase”.


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