No extra cash for 5 million in public sector

Kenneth Clarke, the Chancellor, will underpin his tough line on public sector wages today by making it clear that 5 million public servants can expect a zero increase in their total pay bill for the third year running.

In the Treasury's official evidence to the five big pay review bodies, he will again make it clear that all increases will have to be self-financing and dictated only by the need to recruit and retain staff.

The review bodies cover nurses and allied staff, teachers, doctors and dentists, the armed forces, and top civil servants, judges and military chiefs.

Whitehall estimates are that this will mean maximum increases for public servants of between two and three per cent.

The move will come 24 hours after William Waldegrave, the Treasury Chief Secretary, reaffirmed the Government's determination to meet an eventual target of reducing public expenditure to below 40 per cent of national income.

The underscoring of this objective, set by his predecessor, Michael Portillo, is designed to soften up spending ministers and Conservative backbenchers for a tough spending round. "I believe there is no choice. I believe that unless Britain joins the group which diminishes the burden of public spending as a share of GDP down below 40 per cent in the long term ... we are going to be in the slow economic growth group permanently and we are going to have high unemployment permanently," he said on BBC's Breakfast With Frost programme.

At the time of November's Budget, public spending this year was expected to be 42.5 per cent of gross domestic product, and forecast to drop below 40 per cent only in 1999. The Conservatives, who inherited a level of 44 per cent in 1979, have only achieved this objective for two years, 1988-90.

Mr Waldegrave said the tax cuts regarded as crucial to the strategy for fighting the next election were not yet "under the belt ... The next six months will define the political battleground and will define whether the Conservatives have a serious chance at the next election. I think it depends on this Budget quite crucially".

David Blunkett, Labour's education spokesman, said the Government was now openly split over extra funding for schools. "Gillian Shephard's plea last week for more money is knocked sideways by Mr Waldegrave's objective."

Mr Waldegrave was backed by Michael Heseltine, Deputy Prime Minister. "I think the Chief Secretary is absolutely right to set these targets," he said on BBC Radio 4.

He said it was not simply about making inroads into spending on the welfare state, although there were big savings to be achieved by intensifying the war on benefit fraud. "It is to get down public expenditure in order that we have room for tax reductions, which are a very important part of stimulating the economy."