U.K. to Work Longer And Earn Less in Government Austerity Drive

By Robert Hutton and Gonzalo Vina

Oct. 6 (Bloomberg) -- Gordon Brown announced a freeze in government pay while the Conservative opposition said it wants people to retire later as Britain’s politicians vied to show their determination to cut the country’s record deficit.

The prime minister’s government said wages should remain unchanged next year for judges, family doctors and senior health service administrators. Other civil servants should get raises of less than 1 percent. About 750,000 people will be affected.

Meanwhile George Osborne, the lawmaker in charge of finance for the Conservatives, will say today that he wants to bring forward an increase in the national retirement age to 2016, a decade earlier than planned, to cut 13 billion pounds ($21 billion) a year off the deficit.

“Voters think it’s inevitable there will be spending cuts whoever wins the election,” said Andrew Cooper, pollster at Populus Ltd. “They say they’d rather politicians tell them the truth.”

Today’s announcements mark the start of a period austerity after almost two decades of uninterrupted growth. Even during the depths of the recession, many Britons were cushioned from the crisis by spending on government programs and tax cuts.

Now, both Brown’s Labour Party and David Cameron’s Conservatives say the government must cut spending to curtail a deficit, which at 12 percent of national income next year will be the biggest in the Group of 20 nations. With an election due no later than June 2010, both parties are want to build their credibility with voters on how they’d manage the economy.

Spending Squeeze

The squeeze on government outlays may be the biggest since 1976, when Labour’s James Callaghan sought an emergency loan from the International Monetary Fund, according to the Institute for Fiscal Studies, a non-partisan researcher studying the public finances.

Today, the Treasury will submit recommendations to pay review bodies that mark the tightest wage settlements for government workers in three decades.

As part of the pay proposals, the government is having to renege on a three-year deal agreed with senior civil servants that was due to expire in March 2011 which would have awarded them a 3.04 percent pay rise. Nurses, teachers and police officers aren’t covered by today’s announcement and their three- year pay awards will be honored.

“We have to make tough but realistic decisions on pay,” Liam Byrne, chief secretary to the Treasury, said in a statement in London. “That means leadership from senior groups and realistic increases for other workforces.”

Deficit Pledge

Chancellor of the Exchequer Alistair Darling is looking for savings in government spending as he seeks to implement a pledge to halve the deficit while maintaining the same quality of services at schools, hospitals and other areas.

The Conservative retirement proposal will hit people born after 1951, with the age at which they qualify for their state pension increases to 66 from 65. That change had been scheduled for 2026.

The decision on when to make the change will be made after a review of pension funding to be set up should the Conservatives win the next election, due by June 2010. Polls put the party on course to defeat Brown.

Adair Turner, now the chairman of the Financial Services Authority, in November 2005 completed a review of British retirement plans, concluding that people would have to work longer and save more if they wanted to fund their old age.

The government responded by saying the retirement age will rise to 66 by 2026, to 67 by 2036 and to 68 during a two-year period between 2044 and 2046. After that, the age will rise in line with life expectancies.

The age at which women qualify for their pensions, currently 60, is already planned to rise over the coming decade until it is equal with men’s.

“Our aim will be to bring forward the date when the pension age rises,” Osborne will say in his keynote speech to the party’s annual conference in Manchester, according to his office. “This is how we can afford increasing the basic state pension for all.”

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net