The Government could be heading for a fresh clash with unions after the Chancellor announced plans to cap public sector pay rises to one per cent when the current wage freeze ends.
George Osborne said further restraint on public sector pay was needed from 2013-15 because the Government could not afford a two per cent rise assumed by some departments.
But Bob Crow, leader of the Rail, Maritime and Transport union, accused the Chancellor of having “ratcheted up the class war”.
Local government and health workers are among millions of public sector workers whose pay has been frozen for two years, worsening the bitter dispute over pensions which has led to today’s widespread strike action.
The Chancellor also announced he has asked the pay review bodies to consider how public sector pay could be made “more responsive” to local labour markets. Unions believe this is a move towards regional pay rates, something they strongly oppose.
Mr Osborne said: “This is a significant step towards creating a more balanced economy in the regions that does not squeeze out the private sector.”
He said the current two-year pay freeze will come to an end next spring for some workers and during 2013 for most public sector employees.
“In the current circumstances, the country cannot afford the two per cent rise assumed by some Government departments thereafter.
“So, instead, we will set public sector pay awards at an average one per cent for each of the two years after the pay freeze ends.
“Many are helped by pay progression – the annual increases in salary grades that many people are entitled to, even when pay is frozen.
“It is one of the reasons why public sector pay has risen at twice the rate of private sector pay over the last four years.”
The Chancellor said he accepted a one per cent average rise was “tough”, adding that it was fair to those who worked to pay the taxes that will fund the increase.
The pay review bodies will be asked to report back by next July on different local labour markets.
Restricting pay rises to one per cent will save more than £1bn by 2014-15, MPs were told.
But Bob Crow said: “George Osborne has ratcheted up the class war and has made it clear through his attack on pay and employment rights that he wants the workers to keep taking the hit while the rich get richer.
“After two years of a freeze, pay for millions of key workers will go up by one per cent in the next two years.
“With inflation over five per cent, and the increase in pension contributions, that means nurses and the others we rely on will be around 25 per cent worse off after four years of this ConDem Government while top bosses’ pay goes up by 12 per cent a year. That’s a scandal.”
Dave Prentis, general secretary of Unison, said: “Our recovery is as non-existent as the Chancellor’s apparent understanding of economics. Growth has stalled, and experts are predicting the double dip will hit. What will it take for the Government to realise Plan A is failing?
“We desperately need to get Britain spending. A bad situation will only be made worse by imposing a £3.6bn tax on public sector pensions, by holding down public sector pay, and by throwing hundreds of thousands of public service workers onto the dole.
“It’s time to drop the public sector pensions tax and take steps to put money back into people’s pockets. This will boost growth and get Britain hiring – as it is, the private sector is in no position to dig the country out of trouble.
“Not only is austerity hitting growth – the way it is being applied means unfairness is growing. The Government’s cuts and austerity agenda is hitting women, the young, and making those who are less able to pay plug the deficit. Meanwhile it is still billions in bonuses for bankers. This is only storing up trouble for the future.”