The Independent Parliament Standards Agency (Ipsa) says the inflation-busting £7,600 hike in MPs’ salaries will make up for a historic shortfall that has seen politicians get a pay rise of only 0.6 per cent since 2009.
However, the decision has put Ipsa’s future in question, with Prime Minister David Cameron suggesting he might seek to abolish it if the widely trailed proposal went ahead.
Labour leader Ed Miliband has demanded talks about how to stop the increases.
However, Ipsa says MPs’ pay will go up only in line with average earnings after 2015 and they lose their gold-plated pensions.
After 2015, MPs will get pensions in line with those agreed by the government for public-sector workers, a move that will save millions of pounds.
MPs will also lose their resettlement grants when they step down from parliament, and these are worth between 50 and 100 per cent of their annual salary, with the first £30,000 being tax-free.
Instead, MPs who stand down will receive a “modest” loss-of-office sum, equal to double the statutory redundancy payment of two weeks pay per year served.
Ipsa’s chairman, Sir Ian Kennedy, said the reforms would set MPs’ pay on a sustainable footing for a generation, once it was implemented after the 2015 general election.
He said: “For the first time, MPs’ pay and pensions will be set independently, and away from political deals cooked up in Westminster.
“We are sweeping away the out-of-date and overly generous benefits, and introducing a one-off uplift in pay. Crucially, thereafter, MPs’ pay will be linked to everyone else’s.
“We have designed these reforms so they do not cost the taxpayer a penny more. When taken with the tens of millions we have saved by reforming the business cost and expenses regime, we have saved the taxpayer over £35 million with the changes we have introduced since 2010.”
But the decision has been strongly criticised by the major party leaders and has raised the prospect of MPs regaining control of their own pay.
Mr Cameron said: “We need a process and an outcome in which the public can be confident and a one-off large pay increase at a time when you’ve got pay restraint across the public sector, I think, is not on.”
Noting there would be a final review of the proposals after the next general election, which is due in 2015, Mr Cameron added: “There is time to get it right. The decisions will be made in the second half of 2015 and I hope [Ipsa] will think again.
“I don’t want to go back, if we can possibly avoid it, to a situation where MPs vote on their own pay.”
However, he added: “I don’t rule out – nobody rules out – taking action if they don’t modify the proposal.”
Mr Miliband opposes the rise and said the main parties must “get together to deal with this”. He added: “I want to be clear with the public: I don’t think it’s right that MPs should get this pay rise at a time when nurses, teachers, people in the private sector are going through a pay squeeze and facing incredibly difficult economic circumstances.
“I think it will just undermine trust in politics further. I’m determined that this pay rise does not go ahead if there’s a Labour government.”
Deputy Prime Minister and Liberal Democrat leader Nick Clegg said it was “incomprehensible and wholly inappropriate” for MPs to accept the pay rise. “We are all, unusually in politics, as one on this one,” he said.
Lib Dem Chief Secretary to the Treasury Danny Alexander agreed the pay rise would be “wholly inappropriate”.
Jonathan Isaby, of the TaxPayers’ Alliance, said: “In recommending this pay hike at a time when wages are stagnating for millions across the country, Ipsa has demonstrated itself to be not fit for purpose.”
Meanwhile, the link between MPs’ and MSPs’ pay looks set to be broken following the Ipsa recommendation. MSPs are paid 87.5 per cent of an MP’s wage, so an MSP’s salary would rise to £64,488 if they got the 11 per cent award. But Presiding Officer Trish Marwick has said a similar rise for MSPs was “unthinkable”.
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