Theresa May says wiping out the budget deficit is priority over public-sector pay as PM defends austerity

Theresa May has said wiping out the budget deficit, not higher public-sector pay, is her priority – claiming that to let spending rip would risk a Greece-style collapse.

The Prime Minister echoed George Osborne by invoking the economic crisis that struck Greece to insist on a tight grip on spending, despite fierce pressure to ease up on austerity.

Cabinet ministers are in near-open revolt, demanding Ms May lift the harsh one per cent public sector pay cap, as well as find extra money for education.

But, answering Prime Minister’s Questions in the Commons, she refused to budge – instead mounting her strongest defence yet of the economic policies she inherited.

She told Jeremy Corbyn: “Let me remind the right honourable gentleman what happens when you don’t deal with the deficit. It’s not a theoretical issue.

“In Greece, where they haven't dealt with the deficit, what did we see with failure to deal with the deficit? Spending on the health service cut by 36 per cent. That doesn't help nurses or patients.”

Mr Osborne, now editor of the London Evening Standard, posted a tweet with a smiley face as the Prime Minister – who sacked him last year – now defended his record.

It was striking that Ms May, despite the pressure from within her Cabinet, chose not to hint at a U-turn on public sector pay, widely expected in the autumn.

Later, a Government source doubled down on the message, claiming a Greek-style collapse was “a very real threat” if Mr Corbyn was allowed to implement his tax and spending policies.

Earlier, the Labour leader accused the Government of “flip-flopping and floundering” on future pay for teachers, prison officers, the police, nurses, doctors and other NHS workers.

Ministers were “recklessly exploiting the good will of public servants”, Mr Corbyn alleged, adding: “They need a pay rise.”

He said Ms May had found £1bn “to keep her own job”, alluding to the sum handed to Northern Ireland through the deal for the Democratic Unionist Party to prop her up in power.

“Why can’t you find the same amount of money to keep nurses and teachers in their job – who, after all, serve all of us?” he asked.

Ms May replied that she understood the difficulties people faced, but claimed she was still “dealing with Labour’s mismanagement of the economy”.

The Prime Minister did say looming recommendations about pay for teachers, police officers and prison officers would be considered “very carefully”.

And she denied that a pay award for firefighters – worth two per cent this year and a potential three per cent from April 2018 – showed the pay cap was dead in the water.

“The firefighters’ award is not a matter that is determined by Government, it is determined by the employers and it is not subject to a pay review body,” the Prime Minister said.

“There are outstanding pay review body reports, those cover teachers, prison officers, police officers and senior salaries and the Government will consider those reports very carefully and will respond to them.

“But while we do that we will always recognise that we need to take those decisions against the need to live within our means.”