Page last updated at 17:24 GMT, Tuesday, 9 September 2008 18:24 UK

Darling defends pay rise policy

Alistair Darling's TUC speech in full

Chancellor Alistair Darling has defended policy on public sector pay and rejected unions' calls to scrap a 2% cap on pay rises.

He told the TUC conference he had to ensure inflation did not become "entrenched" at home to avoid any pay rise being swallowed by rising prices.

He refused to rule a windfall tax in or out, but said energy firms "must do more" as household bills soar.

Gordon Brown addressed union leaders at a private dinner later.

Mr Darling was met with polite applause during his speech in Brighton on Tuesday afternoon.

In the question and answer session which followed, questions from delegates on windfall taxes and public sector pay prompted loud cheers from the audience.

Oil prices

The chancellor was met with gasps when he told delegates that, under a Labour government, public sector pay had risen slightly more than that in the private sector.

Delegates were angry that public sector pay appeared to be blamed for rising inflation. Mr Darling said oil and food price rises were the main cause, but oil prices had fallen and inflation was forecast to come down next year.

A bonus should be for hard work not big mistakes
Alistair Darling

"That is why it would be so damaging for us to allow inflation to become entrenched here as it did in the past.

"Which is why in the public and private sectors pay rises must be consistent with our inflation target because otherwise every penny in pay rises will be quickly swallowed up in higher prices"

He agreed times were "tough" but said families and businesses would face even tougher times if "we were to throw away the stability" the government had built up.

"A stable economy is not an optional extra. It is a means to an end - fairness ... the alternative would cost jobs up and down the country."

House insulation

He said the government was listening to calls for a windfall tax, but declined to say whether any decision had been taken on imposing one.

He said the most important thing was energy security, reducing reliance on imported fuel and gas and keeping prices low - but that would require continuous investment.

In the case of oil companies like BP, he said much of their profits were generated abroad and they already paid tax on them in those countries - as well as up to 50-75% tax for oil from the North Sea.

But he said electricity companies had been allowed free EU emissions trading allowances - and the government hoped that the next phase would all be auctioned off, so the money could be spent in Britain.

And he said announcements would be made shortly but it would be a "good thing" if people's bills could be cut year on year, and the housing stock improved, through better insulation.

"We've got to strike the balance between getting the long term investment we need, which again creates jobs, but at the same time, we've also got an obligation to help people, particularly people who are really feeling squeezed as a result of the gas and electricity prices," he said.

He told delegates that Labour had "changed this country" and that should not be taken for granted: "A country changed for the better, not at the expense of economic stability, but because of it."

'Morally bankrupt'

He also criticised the bonus culture among City traders, saying: "A bonus should be for hard work not big mistakes. And excessive bonuses which encourage traders to take excessive risks at a time of easy global credit were one of the major reasons for the global credit crunch."

On Monday the TUC, holding its annual conference in Brighton, voted overwhelmingly to push the government to reassess its public sector pay policy.

Mark Serwotka, general secretary of the Public and Commercial Services Union, said the 2%-a-year figure was "morally bankrupt" at a time of rising living costs.

His union is to ballot its 270,000 members on strikes, and teachers and lecturers are moving towards industrial action.

Some delegates are warning of a "winter of discontent", with widespread public sector disruption.

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