Budget: Public sector pay rises to be capped at 1% as new minimum wage branded a “gimmick”

The claims came as the Scottish Trades Union Congress (STUC) branded the new national living wage “nothing of the kind” and “simply a cheap gimmick”.

The chancellor announced a new compulsory national living wage for workers aged over 25, which will start at £7.20 in April 2016 and then rise to £9 an hour by 2020. It will replace the minimum wage which is currently £6.50.

The new rate, which is still lower than that recommended by the charity the Living Wage Foundation, will mean little to the vast majority of Scotland’s public sector workers who already receive more than £7.20.

The Office for Budget Responsibility said yesterday that it expects inflation to steadily rise over the next four years, hitting 1.6 per cent in 2017 and two per cent by 2020, leaving public sector workers with less cash in their pockets if the estimates prove accurate.

While the Scottish Government could step in to boost public sector pay packets, it will have to find the cash itself for any rises over and above what is offered at a UK level.

The real terms pay cut has reignited fears that Scotland could be hit with years of ongoing industrial action as a result.

Announcing the pay cap, the Chancellor said: “I know there has already been a period of restraint, but we said last autumn that we would need to find commensurate savings in this Parliament.

“So to ensure we have public services we can afford, and protect more jobs, we will continue recent public sector pay awards with a rise of one per cent per year for the next four years. Mr Deputy Speaker, public spending should reflect public priorities – and we have to make choices.”

Mr Osborne also said that he was drastically reducing the provision of tax credits which provided £2bn in additional cash to Scottish households in 2013-14, with two-thirds going to help families in low-paid work with children.

Mr Osborne had previously said tax credits had, at a cost of £30bn, become a “very expensive” system.

He said the low paid would be compensated by tax cuts in an effort to end the “merry-go-round on which people pay their taxes and then get back benefits” and firms would be encouraged to pay higher wages.

But oppoents said the move would totally undermine any benefits low income families might have felt from Osborne’s new minimum wage.

The SNP welcomed the principle of a new hourly rate, but said Mr Osborne had set it too low and claimed the rise would be offset by cuts in tax credits.

The party’s Treasury spokesman at Westminster, Stewart Hosie, said the Budget had been “less a plan to boost productivity, which should have been at the heart of this, and more a sermon from the high priest of an austerity cult”.

He added: “It was not the budget the country needed and it was not the budget needed by those who have suffered the most over the last five years.

“Although the chancellor was right in one regard, it was a Conservative budget - taking from the poor, giving to the rich. The Tories have done it again.”

Addressing the impact of the new minimum wage on employers, Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “Businesses aspire to the best for their employees and most businesses already pay this rate or more, however for some businesses, and especially smaller businesses in some key sectors such as retail and hospitality, wages of this level do not fit within current commercial models.

“Ultimately, consumers will dictate what is affordable and what is not. That is why transition arrangements are important and, in this case, appear to fall somewhat short. The rate of £7.20 per hour applicable from 2016 is more than 10 per cent higher than the current National Minimum Wage and, whilst the National Insurance Contributions Employment Allowance rises to £3,000 next year, it will be a further year before any other benefits to businesses arrive in the form of a cut in Corporation Tax. Businesses need assurance from Government that their genuine concerns over transition to the new scheme will be listened to and acted upon accordingly.”