The chancellor’s annual 1% cap on public sector pay rises could hit councils’ ability to recruit quality staff, the respected Institute of Fiscal Studies has warned in a post Summer Budget briefing.
The warning comes as the economic think tank warns that the budget leaves unprotected government departments- like the Department for Communities and Local Government - facing £19bn cuts between them from 2015-16 to 2019-20.
At a post-Budget briefing, IFS senior research economist Rowena Crawford warned this cut come on top of other pressures, such as increasing spending on children’s services and social care.
The IF briefing follows a budget in which George Osborne announced an annual 1% cap on pay rises for public sector workers for last four years from 2016-17.
According to Treasury papers, this pay ceiling will save the exchequer about £5bn by 2019. A similar measure to restrain public sector pay saved about £8bn in the past parliament.
Ms Crawford, however, warned the cap would result in an “even sharper decline” in the difference between average public and private sector hourly pay than in recent years.
“That might have implications for the quality of public sector workers you can recruit and retain,” she told audience members.
IFS director Paul Johnson said the public sector was entering a “much tougher phase”.
He added: “If private sector pay rises as expected, we think this will take public sector pay levels well below their long-term average relative to pay in the private sector and indeed well below anything seen since we can readily make comparisons back to the early 1990s.”
In another budget announcement, the chancellor pushed back the year in which he expects the economy to make a surplus to 2019-20.
Mr Johnson said this indicated a “gentler than planned path for spending cuts” but did not “represent a let-up in the overall scale of cuts”.
The comprehensive spending review, which will give further details of how cuts will be applied across government departments, is due to be published in the autumn.
In his Budget speech, Mr Osborne pledged that no in-year cuts would be as “deep” as those experienced in 2011-12 and 2012-13.
He reiterated the Conservative manifesto pledge to provide £8bn additional funding for the NHS and committed to increase the defence budget in real terms in every year of this parliament.
Ms Crawford said this meant future cuts to “unprotected” departments would work out at a reduction of about 13% between 2015-16 and 2019-20.
But when looked at since 2010-11 the real terms cut equated to £66bn, or a reduction of about 33%, she said.
Mr Johnson also described as “odd” the move to reduce social housing rents by 1% a year for four years from 2016.
He said while it should save about £1.4bn in housing benefits by the end of the decade, those costs “will fall on local authorities and housing associations”.
Mr Johnson described the benefit cuts overall as “regressive” as they had the biggest impact on the poorest.