Budget: Pay freeze and spending squeeze

Budget coverage in full

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The pay freeze is twice as long as the Tories proposed in their election manifesto and will hit anyone earning over 21,000, but Chancellor George Osborne said it was the "trade off" for avoiding bigger job losses.

Nearly three quarters of public workers will be affected by the freeze, which was immediately condemned by unions who accused the coalition Budget of "declaring war" on state-funded services.

Mr Osborne said: "Many millions of people in the private sector have in the last couple of years seen their pay frozen, their hours reduced, and their pension benefits restricted.

"They have accepted this because they knew that the alternative in many cases was further job losses. The public sector was insulated from these pressures but now faces a similar trade-off.

"I know there are many dedicated public sector workers who work very hard and did not cause this recession – but they must share the burden as we pay to clean it up."

While the pay freeze may reduce the number of job losses facing a public sector which has boomed in recent years, Mr Osborne's revelation that some Departments could see their budgets slashed by more than 25 per cent infuriated unions.

Mr Osborne said he would cut spending by 61bn by 2014/15 – 17bn more than planned by Labour – because he claimed the structural deficit was bigger than anticipated.

"We have committed to providing the National Health Service with real increases throughout the Parliament and we will honour our international aid obligations to the poorest in the world," he said.

"Once these are taken into account, the Budget figures imply that other departments will face an average real cut of around 25 per cent over four years."

Mr Osborne did say he recognised the pressure which Departments like education and defence were under as he suggested they would face smaller cuts, but they are still in line to be ordered to make savings. Spending on housing, local government, transport and culture all likely to be slashed.

Mr Osborne did pledge not to make any further cuts to capital spending, which Labour had already planned to reduce from 69bn to 46bn by 2014-15.

Government Departments which have already had to find 6.2bn of cuts this year will find out exactly how badly they will be hit in the comprehensive spending review on October 20, but Mr Osborne's medicine sparked fury from union leaders yesterday.

Dave Prentis, general secretary of Unison accused the Government of "declaring war" on public services, adding: "This is the most draconian budget in decades."

Unite joint general secretary, Derek Simpson said it was the biggest attack on essential services for a generation, adding: "Today the mask slipped to reveal this Government for what it is – Tory slashers of services and friends of the rich and powerful."

But Hayley Johnson, of Leeds, York and North Yorkshire Chamber of Commerce, said: "The chamber welcomes the news that the Chancellor will protect capital spending on developments that deliver economic returns.

"The chamber will hold him to account on this, ensuring that this investment is used to fund much needed infrastructure projects in our region, such as the Leeds Arena and essential upgrades to the East Coast Mainline."