Chancellor Alistair Darling indicated in a recent interview with Sky News that he is in the middle of making tough decisions on the future course of public sector pay awards (external website). Darling said:

Public sector pay obviously has got to reflect prevailing conditions and, in particular, inflation has come way down. We also have to be fair with regard to people who work in the private sector, many of whom have seen their pay conditions tighten. We will decide on our pay policy over the next few weeks.

Darling's comments came in response to an editorial in the Sunday 5 July 2009 edition of the Observer, in which Audit Commission chief executive Steve Bundred argued that freezing or severely restraining public sector pay awards (subscription required) would be a "pain-free way of cutting public spending". According to Bundred:

[A]s public sector workers have done well over the past decade, they will tolerate some modest real reduction in earnings.

Bundred's comments have inevitably generated a wealth of comment. The response from NASUWT general secretary Chris Keates was especially vehement (external website), arguing that Bundred is misguided in his assumptions regarding what Keates termed an "equity of misery". Keates said:

The idea that you have to have some equity of misery, that because the private sector is suffering, the public sector must too is disgraceful. What it is doing is not understanding the role of public services in a recession - to sustain and rebuild the economy.

Latest analysis of whole economy pay trends from IRS indicates that the main downward influence on the IRS headline pay award - which currently finds itself at an all-time low of 1.3% - is from extremely weak private sector pay deals, while public sector pay awards remain comparatively stable.

All eyes now turn towards Darling's upcoming announcement on public sector pay policy. As ever, XpertHR will keep you up to date on all the latest developments.

UPDATED:

• Public sector pay 2010: Pay cuts in prospect? Chancellor Alistair Darling has indicated that public sector pay will be subject to "restructuring", which could result in pay cuts for some jobs.
• Local government workers face pay freeze in 2010 Unions representing 1.4 million local government services workers in England, Wales and Northern Ireland have been told that their members will not be offered a pay increase for 2010/11.
• Alistair Darling: Budget 2010 in March; election in May; "toughest" spending cuts in 20 years thereafter? Labour is planning a post-election Comprehensive Spending Review which will prove to be "the toughest we have had for 20 years", according to Chancellor Alistair Darling.
• NHS pay rise 2010: pay review body decides not to seek review NHS staff will receive the 2.25% pay increase due as the final stage of their three-year pay agreement from April 2010.
• Pre-Budget Report 2009: public sector pay and pensions Among the "tough choices on public sector pay" outlined in the Pre-Budget Report 2009 was the announcement that the Government will cap basic pay awards across the sector at 1% for 2011/12 and 2012/13.
• Public sector pay outpaces private sector... for now There is no question that public sector pay rises have outperformed the public sector in the 2008/2009 bargaining round. But this stark sectoral pay divide could reverse over the coming year.
• Public sector job cuts in 2010 could hit the UK's "zombie economy" hard No matter who wins the 2010 general election, swingeing cuts in public spending are on the cards, with widespread public sector job cuts seemingly inevitable. The resulting rise in unemployment could deal a decisive blow to what Guardian economics editor Larry Elliott describes as the UK's current "zombie economy.
• Pre-Budget Report 2009 must include clampdown on public sector pay and absences, says CBI The Government must take drastic action on public sector pay and absence rates in 2010 and beyond in order to tackle the current budget deficit, according to the CBI's recommendations for the Pre-Budget Report 2009.
• Public sector pay 2010/11- the Government's approach The letter from Liam Byrne, Chief Secretary to the Treasury, to the chairs of the public sector pay review bodies has now been published on the Office of Manpower Economics website.
• Public sector pay: Darling calls for mix of pay freezes and low increases for 2010/2011  Chancellor Alistair Darling has written to public sector pay review bodies recommending that senior public servants receive a pay freeze in 2010/2011 (external website), while middle-ranking public servants receive pay awards worth between nil and 1%, the BBC reports.
• Public sector pay: pay freezes and "minimal pay rises" forecast for 2010 Senior civil servants, judges and NHS managers will see their pay frozen in 2010 (external website), while the remaining five million public sector will receive "only minimal rises" as the Government seeks to cut costs in order to reduce the budget deficit, according to a report in The Times.
• Every 1% on pay = 10,000 jobs cut, warns senior NHS executive "[E]very 1% on pay is 10,000 potential job cuts" in the NHS, according to a Health Service Journal interview with University College London Hospitals Foundation Trust chief executive Sir Robert Naylor.
• Cable calls for long-term public sector pay freeze  A long-term public sector pay freeze is on the cards (external website) should the Liberal Democrats win the 2010 general election, according to with the party's leader Nick Clegg.
• What will the public spending "squeeze" mean for public sector pay in 2010?  The UK faces the "tightest squeeze" on public spending since the 1970s, according to research published on the Institute for Fiscal Studies (PDF format, 382.7K) (IFS) website. The impact on public sector pay awards for 2010 and beyond could be severe.
• George Osborne claims Gordon Brown did not tell the truth about cuts (external website) The Guardian reports on Shadow Chancellor George Osborne's claims following the leak of an HM Treasury document detailing plans for cuts to public sector department budgets totalling 9.3% between 2010 and 2014.
• Gordon Brown TUC congress speech (external website) The Labour Matters website presents the full text of Gordon Brown's speech to the 2009 TUC conference on 15 September 2009, which included a commitment to "agreeing realistic public sector pay settlements throughout" as one measure to help ensure "sustainable public finances".
• Labour 'to review all spending' (external website) The BBC reports on a speech from the business secretary, Lord Mandelson.
• Public sector job cuts could cause a "double-quick, double dip recession" in 2010, says TUC   With swingeing public spending cuts - likely to result in severe pay restraint and job cuts in the public sector - seemingly on the cards whether Labour or the Conservatives win the 2010 general election, the TUC has issued a grim warning that such action could well plunge the UK back into recession.
• Cut public spending, say voters (external website) Research from the Sunday Times finds that three-fifths (60%) of voters support public spending cuts as a means "to close the budget black hole".
• Pre-Budget Report to spell out the bad news on public sector pay for 2010 Government plans for extensive cuts to public sector spending - likely to include severe pay restraint for 2010 - will be set out in Chancellor Alistair Darling's Pre-Budget Report 2009, which is expected to be delivered during the autumn.
• NHS should cut 10% of workforce, say consultants The NHS should cut 137,00 clinical and administrative posts (external website) - equivalent to 10% of its workforce - in order to achieve a planned £20 billion-worth of cost savings by 2014. This is according to a confidential report to the Department of Health commissioned from consultants McKinsey and Company.
• Conservatives plan to freeze local government pay if elected in 2010  A pay freeze is on the cards for some 1.6 million local government workers if the Conservative party wins the next general election, according to a report in The Times.
• Could public sector pay restraint in 2010 help 'transform recession into depression'? Former Bank of England Monetary Policy Committee member David Blanchflower warns: "If you want to transform a recession into a depression, go ahead and cut public spending."
• Public sector pay freeze considered says Treasury minister A pay freeze for 2010 would seem to be on the cards for a majority of public sector workers, according to FT.com's Westminster Blog (external website).