Brown Freezes Ministers' Pay as Inflation Touches Decade High

By Gonzalo Vina

June 17 (Bloomberg) -- Prime Minister Gordon Brown forced Cabinet ministers to forgo a pay raise this year, part of a response to a surge in inflation that undermined the government's record on managing the U.K. economy.

Brown told his Cabinet that ministers should give up a 1.5 percent pay increase recommended by an independent panel, his spokesman Michael Ellam told reporters in London today. The boost would have been in line with pay for senior civil servants.

``Given the importance of public sector pay restraint at a time of economic uncertainty, ministers will not be accepting any pay rise'' in the year through March 2009, Brown said in a written statement to Parliament. Other lawmakers also had a 650- pound ($1,266) increase above the rate of inflation scrapped.

The move is part of the Labour government's aim to blunt suggestions from opposition lawmakers that Brown has mismanaged the economy. Inflation reached its highest in a decade last month, forcing Bank of England Governor Mervyn King to write a public letter explaining why he missed his target.

Britain's economy is on track for its slowest growth since the last recession ended in 1992 as increasing food and fuel prices drain money from the wallets of consumers. The popularity of the Labour government has slid to its lowest since polling began after World War II as the Treasury pressed ahead with higher taxes on cars and on low-income earners.

Reputation `Bust'

``Gordon Brown's economic reputation has gone bust,'' George Osborne, member of Parliament from the Conservative opposition who speaks on finance, said in a statement. ``Brown's only plans to get us out of this economic mess are tax rises on family cars, alcohol, and council tax.''

The Bank of England today said it ``is concerned about the present and prospective period of above-target inflation,'' as consumer prices climbed 3.3 percent from a year earlier. Price gains may top 4 percent in coming months, King said.

Yesterday, the Confederation of British Industry, the U.K.'s biggest employers' lobby group, forecast economic growth of 1.3 percent next year compared with 3 percent in 2007.

``The Bank of England now finds itself backed into a corner with no room for maneuver,'' Vince Cable, the Liberal Democrat who speaks on Treasury affairs. ``We now have a situation worryingly reminiscent of the 1970s, with unemployment and inflation both rising, and growth falling.''

Union View

The Trades Union Congress, an umbrella group representing more than 6 million workers, called on the central bank to refrain from raising interest because it would do little to alleviate the impact of food and energy prices.

``There is no point in the U.K. economy taking medicine with nasty side effects if it doesn't produce a cure,'' said Adam Lent, head of economics at the union group.

Chancellor of the Exchequer Alistair Darling said the government had to work with other countries to bring down food and fuel prices.

``What's changed in this country is where in the past a lot of the inflation came from home grown problems'' it's now coming from abroad, Darling said in an interview pooled with broadcasters today. ``People can see that prices are increasing every time that they go and fill up their car. They can see the result. They can see it in the supermarkets.''