Financial News

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The Chancellor has refused to rule out a public sector pay freeze after the head of the government's spending watchdog called for salaries to be held.

Alistair Darling told Sky News he would make a decision over the next few weeks, taking into account the effect of the recession.

"Public sector pay obviously has got to reflect prevailing conditions and, in particular, inflation has come way down," he said on Sunday Live.

"We also have to be fair with regard to people who work in the private sector, many of whom have seen their pay conditions tighten.

"We will decide on our pay policy over the next few weeks.

"It has to be fair for people who work for the public sector just as we have to be fair to the private sector."

Audit Commission chief executive Steve Bundred said he believed workers, including those in the NHS and education, would "tolerate" a freeze as they had "done well" over the last 10 years.

And in an outspoken tirade, he accused Labour and the Tories of hiding the true scale of required cuts.

Mr Bundred said: "At a time when inflation is likely to be between 2% and 3%, a pain-free way of cutting public spending would be to freeze public sector pay or at least impose severe pay restraint.

"This is especially true if real wages in the private sector are still falling."

Such a move could provide £5 billion of the £50 billion or more he said would have to be found through tax rises or spending cuts.

Health and education workers could not be exempt from the austerity measures to be fair to others, he suggested in The Observer.

Amid bitter political wrangling over future spending, he warned: "Let's dismiss the notion that spending on health and education will be protected.

"Don't believe the shroud wavers who tell you grannies will die and children will starve if spending is cut. They won't. Cuts are inevitable and perfectly manageable," he said.

Prime Minister Gordon Brown and Leader of the Opposition David Cameron have been engaged in a bitter war of words over public spending.

But Mr Bundred said neither could be trusted to be open with the public on the issue.

Chris Keates, general secretary of the NASUWT teaching union, angrily condemned Mr Bundred's call.

"The idea that you have to have some equity of misery, that because the private sector is suffering, the public sector must too is disgraceful.

"What it is doing is not understanding the role of public services in a recession - to sustain and rebuild the economy," he told the newspaper.