Chancellor keeps the squeeze on public-sector pay: Nicholas Timmins, Stephen Goodwin and Barrie Clement report on renewed warnings over wage rises

PUBLIC-SECTOR employees were warned yesterday that they face an indefinite squeeze on their pay as Kenneth Clarke, the Chancellor, told the pay review bodies that any increase in the coming year must be paid for by productivity.

Mr Clarke's evidence to the review bodies came as Michael Portillo, Secretary of State for Employment, said the public sector faced an indefinite future of no pay rise above inflation, unless paid for by productivity.

In his evidence to the five independent review bodies which recommend pay for 1.4 million people - from doctors, nurses and teachers to the armed forces and senior civil servants - Mr Clarke said that any increase would have to be 'offset, or more than offset, by efficiency and other economies'.

Confirmation of what Mr Portillo admitted was 'a public-sector pay policy' came as inflation edged up 0.1 points to 2.4 per cent in July, while unemployment in August fell by 34,200 to 2,595,900. 'Overall,' Mr Portillo said, 'the public-sector pay bill has to remain pretty well static because the Government must control its costs and it must control the imposition that it places on taxpayers.'

To the extent that efficiency improved 'we should be able to have a little more pay', but that would have to be at the level suited to the new very low inflationary world.

Union leaders reacted angrily. Mick Graham of the GMB warned it was 'storing up trouble for the future', while the Royal College of Nursing said it was 'grossly unfair' when MPs were awarding themselves 4.7 per cent.

In his evidence to the review bodies, Mr Clarke expressed 'concern' that the workers they cover have done better than other public-sector staff. 'Higher pay costs could lead to reductions in service levels, or reductions in employment, if they cannot be covered within provision by the necessary efficiency savings and other economies.'

Mr Clarke said pay increases had to be earned and that 'annual across-the-board increases should not be regarded as a right'. Justifying the continued 'tight regime', his submission said pay settlements generally continued to run at levels that were low by historical standards.

Ann Clwyd, Labour's employment spokesman, said that as well as the fall in the unemployed count, yesterday's figures showed 34,000 fewer people in work over the past three months. 'Jobs are not being created,' she said. 'Jobs are disappearing.'

The public-sector pay bill freeze, however, may not be as strict as the Chancellor likes to pretend. Most settlements seem to have come out at, or near, the inflation rate since Mr Clarke announced in his November Budget speech that the clampdown affecting some 5 million employees would last three years. Scrutiny of the increases enjoyed by most employees this year, however, could lead to the notion that a 'going rate' developed during the public-sector pay round.

The review bodies covering professionals in public service set the ball rolling with 3 per cent awards, similar to the predictions of the inflation rate when they made their deliberations last Christmas.

Since January, most of the rises for groups of workers have been in a narrow range from 1.7 to 3 per cent. Some employees have received considerably more at a time when the 'headline' rate of inflation ranged between 2.3 and 2.6 per cent. Some observers might argue that not all the rises were fully paid for out of savings and that the extra money would be sought through creative accounting, price rises and a deterioration in services.

Leaders of striking signal workers were the first to point to the 4.7 per cent award to MPs where no 'efficiency measures' were delivered or even possible.

------------------------------------------------------------------------ MAJOR PUBLIC-SECTOR PAY SETTLEMENTS, 1994 ------------------------------------------------------------------------ Organisation Staff Group Increase Comments (nos.) (%) JANUARY Royal Mail Jnr & Middle Managers 1.7 (11,000) APRIL Armed Forces Service Personnel 2.7 First stage; (260.000) further 0.9% average due 1.1.95 British Rail All Staff 2.5 (78,000) Civil Service Clerical & Secretarial 2.2 Comprises lump sum (100.000) worth 1.8% + improved meritpay scheme worth 0.4% Civil Service Executive & Support 2.2 Comprises lump sum (62,000) worth 1.6% + improved merit pay Education School Teachers (E&W) 2.9 (470,000) NHS Doctors & Dentists 3.0 (123,000) NHS Nurses & Midwives 3.0 (468,000) NHS Professions Allied to 3.0 Medicine (47,000) Public Services Senior Salaries Review 2.75 Plus 2.8% 3rd stage Body (2,000) of 1992 award; total rise 5.4% Universities Lecturers & Related 2.5 Plus lump sum (60,848) worth 0.35% JUNE Civil Service Customs & Excise 2.6 2.2% merit + O4% (25,000) linked to new pay structure JULY Bank of England Main Staff Group 2.5 Plus 4.3% merit pot (2,000) AUGUST BBC All Staff 3.0 Minimum rise (23,000) pounds 400pa Civil Service Inland Revenue 2.6 3.1% for most (58,300) staff who meet performance targets SEPTEMBER Police Federated Ranks 3.0 Additional rises (120,000 from restructuring ------------------------------------------------------------------------ Source: IDS Report 673/September 1994 ------------------------------------------------------------------------