Treasury urges pay revolution

THE biggest reform of public sector pay in half a century is being urged on Chancellor Gordon Brown in a confidential Treasury report. In return for more help with housing and other costs, almost 7m public employees would be asked to accept big differences in earnings across the regions and a greater role for bonuses and performance-related pay - two developments that have been bitterly resisted by the sector until now.

A 47-point action plan prepared for Brown by Treasury officials tries to boost the recruitment of key public-sector workers while keeping a lid on the wage bill.

Alarm bells rang last month when more than 250,000 National Health Service workers won pay rises of up to 6.5% - above the 6% limit in Brown's 20-year NHS plan unveiled in the April Budget. Overall pay for state employees rose by 4.4% in the year to March against 3% for the private sector.

The plan proposes better rewards for key workers in expensive areas such as the South-East, balanced by significantly lower pay in regions with more moderate living costs. The accommodation crisis facing key workers in high-price housing areas would also be addressed - but, in return, the Treasury would want a big change in efficiency and productivity for groups such as the police, fire brigades and the prison service.

One Treasury source said: 'This will be a main theme of the Spending Review [expected next month]. Both sides of the deal have to happen - and they have to happen pretty much in parallel.' Brown has already warned trades unions that 'the days of something for nothing are over in the public services'.

The Treasury wants to introduce a scheme drawn up for Brown more than two years ago by John Makinson, a senior executive with media group Pearson, under which large blocks of public employees - the Inland Revenue, Customs, the Benefits Agency and Employment Service - would receive bonuses and performance-related pay equivalent to at least 5% of their salaries.