Britain well placed to ride out credit crunch, Darling tells TUC

Alistair Darling weathered a potentially difficult confrontation with a disillusioned TUC conference yesterday by declaring that Britain was in a good position to ride out the credit crunch even though workers will face short-term, below inflation pay rises and a big rise in fuel and food bills.

The chancellor was jeered and faced cries of "rubbish" from the delegates when he insisted public sector workers had done well until now under Labour by receiving pay rises worth 39% since 2000, higher than the private sector.

But his comments attacking banks for their irresponsible lending and City executives for taking excessive bonuses, whether they succeed or fail, went down well with delegates at Brighton.

Overall his speech was received in polite silence with jeering and clapping reserved for the question and answer session that followed. Union leaders afterwards expressed disappointment over his failure to commit himself to a windfall tax, and for offering little comfort to low-paid workers and families struggling with high bills.

Darling's main theme was that the government had to live within its means and could not risk creating home grown inflation by allowing higher pay awards to make himself popular with delegates.

He accepted the TUC's main point that the current 5% inflation had been caused mainly by the huge rise in oil and food prices. But he insisted that if the oil price continued to fall inflation would come down next year. "That's why it would be so damaging to allow inflation to become entrenched, as it did in the past," he said. "That's why, in the private and public sectors, pay rises must be consistent with our inflation target. Otherwise every penny in pay rises will be quickly swallowed up by higher inflation. And we all remember the job losses that followed in the past once inflation takes a grip.

"Hundreds of thousands out of work, as happened in the 80s and 90s. We cannot allow that to happen."

Delegates were right to be incensed about City bonuses. "You're rightly concerned about excessive bonuses - especially when people seem to get money for failing not succeeding. And that's got to change.

"A bonus should be for hard work, not big mistakes. Excessive bonuses, which encourage traders to take excessive risks, at a time of easy global credit - one of the major reasons for the global credit crunch. We need to learn the lessons to prevent this happening again." Treasury officials said afterwards that his comments on executive pay referred to a review by the Financial Services Authority.

During questions from delegates from the Public and Commercial Services Union and Unite, Darling insisted that he could not increase public sector pay and would not pledge a windfall tax. But he did offer two small concessions - a review of pay rises at the Department for Work and Pensions where 40% of staff receive no rise this year, and possible pay rises for railway and nuclear inspectors because nobody was applying for jobs.

Brendan Barber, the TUC general secretary, praised Darling's performance. "Not every response will have satisfied, but the chancellor will have won respect for his clear answers and his insistence that fairness must be the watchword of the government's response to the slowdown."

But Paul Kenny, GMB general secretary, said Darling's performance was an attempt to warm the delegates "but was only as warm as a toaster that had been unplugged for two hours". He welcomed the comments on executive bonuses.

Keith Sonnet, deputy general secretary of Unison, said: "There was little comfort in that speech for millions of hard-working families struggling to make ends meet, unable to pay their bills and facing harsh choices. They deserve better than that.

"It's all very well saying that the government has to live within its means, when it is taking the means to live from working people, denying them a fair pay rise and pushing them into debt."

The PCS and Unite were particularly unhappy about the chancellor's speech. Mark Serwotka, general secretary of the PCS, criticised him for failing to do anything about low pay and expressed scepticism on whether the Treasury would agree to higher pay for staff at DWP.

Tony Woodley, joint general secretary of Unite, condemned the chancellor for not taking stronger action against exorbitant rises in windfall profits by the utility companies. Earlier at the conference he had called for the nationalisation of all utility companies and backed the renationalisation of the rail network.

· This article was amended on Thursday September 11 2008. Keith Sonnet is deputy general secretary of Unison, not of the GMB as we originally implied in this article.