The new coalition government ministers have agreed to take a 5% pay cut and see their salaries then frozen for the duration of parliament, in a bid to reduce Whitehall costs.
The ministerial pay cut will save £300,000 this year, the Cabinet Office said, with £50,000 of those savings coming from the cuts to Cabinet ministers’ pay.
Over the lifetime of the Conservative and Liberal Democrat parliament, the salary cut and pay freeze is expected to save about £3m.
The pay reforms mean prime minister David Cameron will now earn £142,500 rather than the £150,000 Gordon Brown received, representing a £7,500 cut.
Cabinet ministers’ pay will be reduced to £134,565 – £7,082 a year less than their Labour predecessors.
Ministers of state will see their pay drop by £5,197 from £103,937 to £98,740.
The changes only affect ministerial positions, so MPs salaries will be unaffected.
The announcement came as economists and businesses feared the new government could be about to reveal a VAT hike, the Times has reported.
A survey of independent Treasury economists found 24 out of the 28 expected the tax to rise during the this parliament, with most forecasting an increase from 17.5% to 20% by the end of next year.
Business leaders urged the government to give them warning and time to prepare for any VAT rise.
Justin King, chief executive of Sainsbury’s, said: “What we would say is we need to know in good time and that there needs to be sensible timing and not in our key trading periods such as the run-up to and in the aftermath of Christmas.”