Philip Hammond calls for ‘grown-up debate’ over scrapping public sector pay cap

Posted On: 
4th July 2017

Philip Hammond has called for a ‘grown-up debate’ about tax and spending, but stopped short of promising an end to the public sector pay cap.

Philip Hammond is under growing pressure over the public sector pay cap
Credit: 
PA Images

The Chancellor has been under intense pressure from factions in his own party over whether workers in frontline services should receive a rise on the current 1% cap on earnings, with or without raising taxes.

In a speech to business leaders at the CBI's president’s dinner, Mr Hammond said: "The serious question to the electorate cannot be 'would you like us to tax someone who isn’t you to pay for you to consume more?', but 'would you be willing to pay more tax to consume more public services?'”

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He added that further borrowing would have to be accepted by those calling for it as "passing the burden on to the next generation".

Yesterday Boris Johnson became the latest senior minister to call for the cap to be lifted, joining Michael Gove, Michael Fallon, Chris Grayling and Jeremy Hunt as among those suggesting a change in policy – while Nick Hurd said the move was in “active discussion”.

Meanwhile a number of ministers are urging an end to the cap by scrapping commitments to reduce corporation tax and raise the thresholds for the personal allowance and the 40% income tax rate, according to The Times.

Former Chancellor Lord Lamont backed Mr Hammond however, saying restraint on public spending was “unavoidable”, and accused his colleagues of “ganging up” on him.

Meanwhile former Work and Pensions Secretary Stephen Crabb suggested that Mr Gove and Mr Johnson should resign from Government if they are going to publicly oppose the cap.

Review bodies looking at police and teachers' pay are both set to report this month, with a chance both will recommend increases above 1%.

"We do, of course, recognise that the British people are weary after seven years hard slog repairing the damage of the Great Recession,” the Chancellor said last night.

"They have travelled a long way but still the sunlit uplands seem stubbornly to remain one further ridge away."

"And once again, some are questioning whether we should abandon the economic plan that has brought us so far and take a different path.

"A path of higher taxes on business and wealth creators, higher spending, nationalisation, and higher borrowing."

He added: "That does not mean we can’t have a debate in Britain about the level of funding of public services.

“But it does mean that it has to be a grown-up debate where we acknowledge that borrowing to fund consumption is merely passing the bill to the next generation and reject the fallacy that the burden of additional taxation can always fall on someone else.

"Then, hopefully, we can build a consensus that the only sustainable solution is to increase the trend rate of growth."

Institute for Fiscal Studies director Paul Johnson said while the Chancellor could afford to raise wages, any changes should be thrashed out with other ministers to avoid further calls for increased spending in other areas of the public sector.

Writing in The Times, he said: “The issue, as ever, is one of priorities. The answer to the question of whether the government can afford this, that or the other is almost always yes, if it chooses to.

“But choices involve trade-offs, they involve doing more of this but not more of that, or indeed less of something else.”