Gordon Brown’s government is determined to hold down public sector pay to to 2 percent over the next three years.
Last week the government produced its pre-budget report and a public spending review.
The pre-budget report commits the treasury to “public pay settlements consistent with the government’s achievement of the government’s inflation target of 2 percent”.
It urges departments to ensure “total pay bills represent value for money and are affordable within departments’ overall expenditure plans”.
According to the government’s forecasts, over the next five years, spending as a share of national income will shrink by £7 billion.
Overall public expenditure growth is projected to grow by 2 percent per year in real terms from 2007-8 to 2009-10. This is only half the rate of 2004 to 2008.
This means that Brown is demanding yet more cuts in the civil service, health and education.
Apart from stealing Tory ideas by cutting inheritance tax for the rich, chancellor Alistair Darling also announced some changes to the capital gains tax regime.
The new rate of 18 percent still leaves the multi-millionaires in the private equity business paying a lower rate of tax on their income than workers.
The government left in place private equity’s exemption from corporation tax on the interest paid on the debt used to buy companies.
For instance, the AA has paid no corporation tax since 2004 using this rule, despite its profits almost trebling.
While cutting the general tax on profits to 28 percent, Darling announced yet more cuts in public spending.
Government departments will save a further £30 billion by 2010, on top of £20 billion of savings already achieved, the chancellor said.
There is money in the neoliberal plans for some things though.
Darling allocated an extra £400 million for military operations abroad this year.
He also announced the police and security services will get an extra £1 billion a year.
The low tax regime for the bosses means less money for workers and public services.
The reality of why public sector workers need to break the pay freeze was in an annex of the Comprehensive Spending Review.
While inflation is around 4 percent the government figures show that real household disposable income grew by just 1.25 percent in 2006, down from 2.1 percent in 2005.