Westminster blog

Total savings: £7bn a year and £23bn over course of next parliament.

Public sector pay freeze The Tories will recommend a pay freeze in 2011 for 4m public sector workers earning more than about £18,000. This would save about £3.2bn a year. No existing pay settlements will be broken. The 1m lowest paid workers will receive around 2.4 per cent a year increase.

This has been a bad day for judges, GPs and senior civil servants: they wont be seeing a pay rise till at least 2012, saving an additional £2bn over 2 years. The brave armed forces will also feel some salary pain — but those on operations will see their allowance doubled to £4,800. Intriguingly, the Tories say they will also ask the pay review body to restrain “pay drift” in the public sector — basically the steady increase in the payroll bill from people being promoted. They will also ask them to cap bonuses and allowances at 2008 levels.

The 50p tax rate stays Don’t expect the Tories to reverse the tax hike on high earners — even if it is losing the Treasury money — until the public sector start seeing pay rises. But Osborne does think that in the long run high taxes rates “destroy enterprise”. So that’s alright then.

Shrink Whitehall and Quangos An admin cost reduction of £3bn a year by the end of the next parliament. They say this is bureaucracy — bits of government that produce targets, policies, regulations and those poor souls who fix Whitehall’s ageing computers. Back offices will take a £1bn hit. The “policy, funding and regulation” bureaucracy will take a £2bn hit out of their total budget, which is £3.5bn for Whitehall and £2.4bn for Quangos. This will mean job cuts, but the Tories say it’s impossible to say how many. If the Tories are to be believed, they are attacking the deadhand of paper-shuffling, regulation obsessed bureaucrats that Business loves to hate. I expect the reality is more mundane.

“Tens of billions of pounds of efficiency savings and productivity improvements” Hurrah! But don’t expect much more detail this side of a general election.

Watch out bankers Osborne had a “tough message for bankers too”. He threatened to “take further action” including using the tax system if bank balance sheets were “being unreasonably diverted into bigger pay and bonuses”. Osborne’s team are not being more specific. But one ally did draw a parallel with Lord Howe: in 1980 Howe warned the banks against profiteering from low interest rates, then imposed a windfall tax in 1981. So be warned City.

Withdraw tax credits from “high earners” If Osborne reaches No 11, any household earning more than £50,000 should no longer expect the family element of the child tax credit. This is done by reducing the threshold for means testing to £40,000 — so families with incomes of 40-50K will also receive less. This saves around £400m a year. This is a brazen raid on a middle class perk: a household with two teachers would be affected. But the Tories say the maximum loss will be around £10 a week.

Stop child trust funds More tough love for the middle classes. The perk will be withdrawn for all except disabled children and for those with household incomes below £16,040. Saving: £300m a year. Existing funds will be unaffected.

£50,000 cap on public sector pensions This is less a vow than an aspiration. The Tories say they’ve had legal advice that a cap is possible. But they admit it’s a complex area. They will respect what has been accrued, but any public sector annual pension worth £50,000 will see no more contributions from the Treasury. That includes ministers, MPs, senior civil servants, judges, Quangocrats and local council chief executives.

Review state pension age The review should “consider” whether to bring forward the increase the age from 65 to 66 to 2016 for men and 2020 for women. Saving: about £13bn, once the change is fully in place. Women older than 54 and men older than 58 have no need to worry.

Reversing Brown’s “raid” on pensions Brown withdrew the dividend tax credit that pension schemes had enjoyed, to howls of rage from middle England. Osborne said he wanted to reverse this, when the deficit has been dealt with (ahem).

Related reading:
The FT’s Money Supply blog: A Conservative Budget not that different to Labour