Ballooning public debt is a problem for any country, and Alistair Darling has indicated that he is willing to tackle the issue head on. The British public will surely back any reforms that Darling brings to the table, but some of the reforms may be a little less palatable than others.

While many people have welcomed the slashing of bloated public sector spending, there has been widespread criticism of some recent reforms by the Ministry of Defence (MoD).

Representatives of the wounded troops and relatives described the move by the MoD as ‘out of touch’ and the court bid as ‘unfortunate’.

The MoD has argued, however, the compensation should be only for the original injury acquired during active service and not for any complications arising from that injury.

It is easy to see, amid mounting casualties in Afghanistan, why this would be an unpopular move.

Two wounded soldiers recently won an action through the Court of Appeal, forcing the MoD to increase the compensation level.

The soldiers, Corporal Anthony Duncan and Royal Marine, Matthew McWilliams, received £9,250 and £8,250 respectively. After their successful appeal, the compensation was increased to £46,000 and £28,750.

The soldiers argued that the original injuries had incurred a number of ongoing health problems and that these problems should not be viewed as separate from the original injury.

Fortunately for the soldiers, the three judges agreed with them, but it appears that the MoD does not and is now seeking to overturn the ruling.

The mother of a serviceman who lost both legs and suffered severe brain damage said that the legal action of the MoD showed just how much the government was out of touch with public sentiment.

Simon Weston, who became a hero after returning from the Falklands conflict with horrific burns, pointed out that many service personnel with the worst injuries “will never work again or will always have problems”.

In defence of its actions, the MoD explained that it had doubled the maximum lump sum payment to £570,000 for the most severely injured soldiers, in addition to an index-linked monthly income for life.

The recent action is an attempt to introduce ‘fairness’ to the scheme, said Defence Minister Kevan Jones.

In the midst of the media attention and emotion, public service workers must be watching this case with a growing sense of doom. If the government is willing to take such an unpopular step with returning servicemen, what other public service cuts are in the offing? How safe are pensions and other benefits that have been a mainstay of the public service sector for so long?

Alistair Darling has already signalled that he is willing to constrict the pay levels of the six million public sector workers in the UK.

It seems that the government may be willing to reopen the multi-year deals that it has with teachers and health workers, a move that likely will be very controversial.

The chancellor believes that public sector pay has to reflect the prevailing economic conditions.

Mr Darling points out that the private sector has been badly hit by the recession. Average earnings in the public sector for the three months to March 2009, including bonuses, stood at +3.6%, compared to -1.2% in the private sector.

He may be swayed in his policy decisions by a recent statement from Steve Bundred, Chairman of the Audit Commission. Mr Bundred pointed out that a freeze in public sector pay would provide 5bn of the £50bn that would have to be found through tax rises or spending cuts.

It seems that the depth of the recession has taken the
chancellor by surprise. The economic slowdown is deeper than he predicted at the time of the spring budget. In the face of this, he has promised to “rigorously examine each budget” and give updated public spending predictions in the pre-budget report in autumn.

But he has warned that overall public spending after 2010-11 cycle will be much tighter.

Immediate savings can result from making substantial cuts in the public service pay of two of the biggest groups of public employees, health workers and teachers. Both these groups are in the middle of their three year deals, due to end in 2011. Their pay deals were negotiated at a time when inflation was projected to be much higher than the current 1%.

Teachers’ employers are yet to decide, they say, whether or not to ask the government to review the 2.3% offer due in September and in 2010.

Also, the NHS pay review body has to decide whether or not to honour the final year of a three year deal, covering 2008-09 to 2010-11 and worth 2.7% a year. This pay deal affects more than 1.3 million staff and makes up a whopping 40% of the health budget.

And in local government, unions are still fighting for an improved offer on the 0.5% offer that was due in April. The general secretary for Unison, Dave Prentis, argues that freezing public sector pay during a recession will not help.

But it will be interesting to see who Mr Darling listens to in this situation. Some of his recent statements about the situation appear to be at odds with the Prime Minister, Gordon Brown, who wants to build the next election campaign on investment by Labour, in contrast with Tory spending cuts.

David Cameron has already warned that the cost of public sector pensions will be slashed should a Tory government be returned to power. This statement will undoubtedly strike a chord with millions of private sector workers, already under pressure due to the recession, who now face the possibility of paying more in tax towards the pensions of public service workers.

Treasury figures show Britain’s public sector pensions are set to rocket to £3.8billion in 2009/10 from £1.2billion in 2006/07.

Any move on pensions or any pay cuts will be hard for public service workers to swallow. The benefits of public service jobs is one of the biggest attractions to state employ. At the moment it seems that some level of pay cuts or loss of benefits for workers is inevitable, but whatever the decision, Alistair Darling has a hard road to walk. Who would be chancellor at times like these?