Cap on public sector pay fails to plug financial hole

The 1% pay rise cap for social workers and other public sector staff will save the government £3.4bn, but it will still leave a £15bn gap to be filled by further cuts, the Institute of Fiscal Studies revealed today.

Due to the protection of many NHS budgets in yesterday’s pre-budget report, other public sector departments will have to slash 6.2% of their budget in each of the next three years to meet government spending plans, the IFS analysis said. Had the NHS been subject to the same level of cuts, departmental budgets would shrink by 3.4% on average.

The cuts will save £25.5bn by 2012-13. In the following year, the government’s spending will revert to 2001-2 levels.

Efficiencies

The government has said it will cut £35.7bn from departmental budgets by 2013-14. But the IFS estimates that £11bn of efficiencies, the £3.4bn savings from the pay cap, a £1bn saving on pension reforms and low-priority budget cuts of £5bn leave a £15bn hole.

Analysts believe that the most likely areas to be cut to make up this shortfall will be defence, higher education, transport and housing.

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