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Last Updated: Thursday, 24 November 2005, 00:49 GMT
Brown urges worker wage restraint
Gordon Brown
Gordon Brown has written to the pay review bodies
Pay increases for millions of public sector workers should be held down to close to 2% to limit the risk of inflation, Gordon Brown has said.

The chancellor has asked the bodies which review pay deals for doctors, teachers and some civil servants to remember the need for wage discipline.

He wants to ensure a temporary rise in inflation does not become permanent.

His warning risks confrontation with public service unions, who say many of their members are paid too little.

Inflation risks

Mr Brown has written to the public sector pay review bodies about his concerns and will reinforce his message in a speech on Thursday.

The bodies cover about 40% of the public sector pay bill and include about two million workers in healthcare, education, prisons, the armed forces and some senior ranks of the civil service.

In his letter, Mr Brown says: "It will be important to ensure that public sector pay settlements do not contribute to inflationary pressure in the economy.

"To do so would risk converting a temporary increase in inflation into a permanent increase.

"The pay review bodies should therefore base its pay settlements on the achievement of the inflation target of 2%, rather than on the recent temporary rise in the rate of inflation."

Service sectors

Annual growth in the Consumer Price Index has been above the Bank of England's 2% target for four consecutive months.

Mr Brown stresses that inflation began to fall in October, showing that the rises in inflation this year are largely due to the temporary impact of higher oil prices.

In his speech to the Institute of Directors in London, he will emphasise the importance of wage restraint in service sectors.

He will say that services accounted for a third of British families' spending a year ago but now the figure is a half.

Mr Brown will argue: "The public sector must play its full part."

Low wage worries

Public sector unions such as Unison are signalling they will fight any attempts to impose below inflation rises.

A spokesman for the Public and Commercial Services union said many of its members were not directly covered by the pay review bodies.

But he added: "We do have issues in terms of Gordon Brown saying that when a lot of our members are earning just over the minimum wage...

"Our members will certainly be angry if they are being told they have got to take a real terms pay cut."

In his speech, Mr Brown will say he is trying to ensure oil supply rises to meet demand, especially as "oil alone has been responsible for half Britain's rise in inflation".

And he will say the British economy has continued to grow this year while keeping inflation under control.

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