No more bailouts to fund public sector pay rises, cabinet ministers warned
Cabinet ministers have been warned they will no longer be able to draw on Treasury reserves to fund public sector pay rises in a bid to ease growing pressure on government finances.
Treasury Undersecretary James Murray has written to ministers to remind them to keep public spending under tight control and said access to reserves would only be granted on an exceptional basis.
As part of preparations for next month’s much-anticipated Budget, extra aid paid to ministries will also need to be paid back to the Treasury.
Mr Murray said: “To maintain tight control over public spending, departments need to take responsibility for managing pressures and making choices about priorities without relying on reserves.
“We must implement the efficiency plans put forward in June, reduce administrative budgets, including the budgets of independent institutions and organizations, and ensure comprehensive digital transformation.”
Chancellor Rachel Reeves is under increasing pressure after dismal economic figures led to predictions Labor would have to raise taxes or break its own fiscal rules to plug a £50bn deficit in its total.
But the crackdown comes just months after Labor offered above-inflation pay rises to most public sector workers shortly after coming to power.
Labor has sought to end a series of strikes that plagued the last Tory government with pay rises of 5 per cent to 6 per cent above inflation for most public sector workers.
While the strategy may have worked in the short term, just this week first-year doctors in England voted overwhelmingly in favor of new strike action, citing concerns over job security and significant pay erosion.
If cabinet ministers try to use the reserve to plug funding shortfalls, they will have to show the Treasury how they have exhausted all options to find the money through savings and cuts.
And everything the money departments take will have to be paid back in successive years.
Details of the new system came after Ms Reeves, speaking at the cabinet’s first meeting since Sir Keir’s reshuffle last month, warned ministers they would face limited help from Treasury funding if they disrupted spending plans.
It is constrained by Labour’s manifesto commitment not to increase income tax, national insurance and VAT; That leaves out three of the biggest potential revenue boosters for the Treasury.
Labor MPs’ revolt against planned welfare reforms has also created a £5bn hole in spending plans, while the government has been forced to bypass planned restrictions on eligibility for winter fuel payments.
