Theresa May defends austerity after public sector pay row

Theresa May defends austerity after public sector pay row

PM warns UK risks turning into Greece if it fails to control deficit

Theresa May has given a full-blooded defence of Britain’s austerity programme after a split among her ministers on whether to raise public sector pay, warning that Britain risks turning into Greece if it fails to control its deficit. After a week of cabinet disarray, Mrs May came down decisively on the side of chancellor Philip Hammond on Wednesday, arguing that the government would only pay what it could afford.

 Mrs May virtually ignored the economy during the general election campaign, so her public advocacy of sound finances and spending restraint — once viewed in Downing Street as redolent of the David Cameron and George Osborne era — was significant.

She told MPs at prime minister’s questions that if the UK government lived beyond its means, it risked going down the route of Greece, claiming that health spending in that country had fallen 36 per cent.

Asked later if the UK could still follow Greece’s path, a Conservative spokesman said: “She was suggesting, if Jeremy Corbyn’s Labour party got the chance to impose its fiscal policies on the United Kingdom, that is a very real threat, yes.”

Boris Johnson, the foreign secretary, who has argued for a relaxation of the government’s 1 per cent cap on pay increases for public sector workers, sat stony-faced as Mrs May launched her defence of austerity, while Mr Hammond and many other Tory MPs cheered her on.

The government is committed to a 1 per cent pay cap for the public sector until 2020, although Mrs May has said pay settlements between now and then would reflect the advice of independent pay review bodies. Firefighters have been awarded a 2 per cent settlement but Mrs May said this should not be seen as a benchmark because they were not covered by the same pay review process and their salaries were paid by local authorities.

Although Mr Hammond is expected to loosen the spending cap in his autumn Budget, Mrs May has endorsed his view that the Tories cannot match Labour on public spending, but can win an argument on sound economic management.

Mrs May told MPs there had to be a “balance” between the needs of workers and the needs of those who funded public services. Mr Corbyn responded that there was a “low-pay epidemic” in the UK. “It has a terrible effect on young people,” he said. “Those in their 20s will earn £2,500 a year less than the generation before.” John McDonnell, shadow chancellor, said Mrs May was presiding over a “cabinet of chaos”.

But Ken Clarke, former Tory chancellor, said that following Labour’s advice would be a “political disaster” and would damage the economy, with the prospect of pay chasing inflation and ultimately undermining public services.

 Last week, Mrs May’s aides strongly hinted that the pay cap would be lifted and that the prime minister was “listening” to what voters said at the election. A furious Mr Hammond subsequently told Number 10 that this was a matter for his Budget.

 The chancellor, who was braced for the sack if Mrs May had won a strong majority at last month’s general election, is now seen as a highly influential figure.

George Parker & Robert Wright

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