Chancellor issues warning to unions over public sector pay

Gordon Brown yesterday told public-sector workers they would not be allowed to swallow up his £43bn boost for public services in higher pay.

Gordon Brown yesterday told public-sector workers they would not be allowed to swallow up his £43bn boost for public services in higher pay.

The Chancellor prompted a dispute with unions by making clear that wage awards should be within his 2.5 per cent inflation target, even though rises in the public sector have fallen behind the private sector.

The Treasury is concerned because previous spending increases have fuelled "catching-up" demands from publicsector employees. A Treasury source said last night: "If the unions think that will happen this time, they will get a rude awakening."

Rodney Bickerstaffe, general secretary of the Unison public-service union, said: "If Gordon Brown, Tony Blair and the Labour government think they are going to be able to deliver quality public services without a decently paid, well- motivated workforce, then they are mistaken."

Mr Brown told the Commons Treasury Select Committee that the three-year spending blueprint he published last week was "not a signal for public-sector pay rises. It is quite the opposite."

Mr Brown said that in the "boom and bust" days in the 1980s and 1990s, unions sought to get the benefits from economic growth through higher pay. But there was no need for "a one-year push" on pay, because sustained growth had been achieved. "The rise in spending ought not to be equated with automatic pressure for public-sector pay rises. Public- sector workers should expect affordable pay rises and not unaffordable pay rises."

The Chancellor said that his injection of cash into public services could send unemployment tumbling below the one million mark without triggering higher interest rates.

Mr Brown dismissed warnings by members of the Bank of England's Monetary Policy Committee and independent economists that his spending increase would drive up inflation. He also slapped down Robin Cook, the Foreign Secretary, for saying that single-currency membership was inevitable. The Chancellor said it was hardly a "foregone conclusion", because the Government's five economic tests would have to be met and the people would have to decide in a referendum.

* The cross-party Environmental Audit Select Committee accused the Treasury of dragging its feet over implementing a climate-change levy, saying delays could set back the cause of green taxes by a generation.