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Britain's public employees face raises below inflation rates

Section: Daily Dispatches

Review Backs Below-Inflation Pay Raises

By Ben Hall and Nicholas Timmins
Financial Times, London
Tuesday, February 27, 2007

More than 1 million doctors, nurses, and other public sector workers face real terms pay cuts after the review bodies that recommended their salaries have proposed below-inflation pay increases.

The independent pay arbitrators that cover senior civil servants, judges, prison officers, and National Health Service staff have recommended rises for most employees below not only the retail price index rate of 4.2 percent but also the consumer price index, which stands at 2.7 percent.

The recommended rises are nevertheless higher than the government had hoped and pose a challenge to Gordon Brown, the chancellor, who has called for average increases to be pegged at 2 percent, in line with the Bank of England's inflation target.

They are also significantly above the 1.5 percent that Patricia Hewitt, the health secretary, has said is all the NHS can afford for the coming year.

Only the review body covering the armed forces is understood to have recommended a rise above the CPI.

Ministers must decide whether to honour the recommendations or to phase them in as they seek to control public sector pay ahead of a sharp drop in the rate of public spending increases next year. Pay rises for NHS consultants and family doctors -- who have both seen big increases from new contracts -- look likely to be phased in.

The recommendations will anger unions, which argued for substantial rises when they gave evidence to the review bodies as the inflation rate was rising last autumn.

However, ministers will argue that, particularly in the case of the NHS, incremental pay increases for staff as they move up pay scales will give most of them pay rises that at least match inflation, even if their headline pay rise falls below the inflation rate. The Bank of England and most economic commentators expect inflation to moderate this year.

Mr Brown has stepped up his calls for pay restraint in recent months as he seeks to show that he is committed to achieving greater value for money from public services.

Whatever they decide, ministers are braced for an angry reaction from more than 1.3 million NHS staff and 35,000 prison staff, with senior civil servants and judges also facing modest increases.

Ministers may also face a fresh claim from teachers who are mid-way through a two-year pay deal but have the right to re-open it if the retail price index exceeds 3.25 per cent in the year to March 2007. With the RPI standing at 4.2 percent, teacher unions have already written to their pay review body saying that a breach of the 3.25 percent figure looks likely and serving notice that they want the issue addressed.

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