Chancellor George Osborne says public sector pay rises are to be capped at 1% for two years.

The announcement, delivered during his Autumn Statement, means that NHS doctors will not have had anything like an inflation matching pay rise in six years.

Consultants are currently in the second year of a three year pay freeze, and when that ends will only receive a maximum of 1% salary uplift, if at all, for the ensuing two years.

Pensions are also under review and consultants are likely to have to work longer and make higher contributions for weaker benefits. And there’s still no indication whether this year’s Clinical Excellence Awards programme will be run, as the profession awaits the government’s response to the pay body’s review.

Stephen Campion, chief executive of the HCSA, said: “This announcement reinforces the need for a negotiated settlement on both pay and pensions, although I very much fear that attitudes will harden in the coming weeks. The timing of all this is particularly insensitive coming as it does not only during the pension negotiations but also when the government has been made aware only this week of the need for improved hospital consultant cover at night and weekends.

“Today’s announcement will do little to help the health secretary and NHS Employerswork work with health professionals who will feel even more undervalued than they did before the Chancellor’s announcement.”

Inflation is currently running at around 5%.

The BMA has said it will ballot members on the government’s pension proposals, and is not ruling out an industrial action vote in the future.

Dr Hamish Meldrum, BMA chairman of council, said: “The Chancellor’s decision to bypass the normal pay review process for a further two years and announce another sub-inflationary pay award will come as a bitter blow to all those who work in the NHS.

“Doctors, like their public sector colleagues, are angry at the government’s proposals to slash the value of their pensions. This announcement, coming on top of what will be three years of pay freeze for senior doctors, will further alienate those who are working hard to deliver improvements to patient care.”

Osborne also confirmed that UK economic growth would be lower, and borrowing higher, than was forecast during the Budget in March.

Delivering his Autumn Statement, Osborne told MPs the UK economy was now forecast to grow by 0.9% this year - compared with 1.7% forecast in March and 0.7% next year down from the 2.5% March forecast. This would be followed by 2.1% in 2013, 2.7% in 2014, and 3% in 2015.

The Office for Budget Responsibility has increased its estimate of the public sector jobs expected to go. Previously, the figure was put at around 400,000 - it’s now 710,000.

The consultant contract will have been eroded by 16% by the time the two-year pay freeze ends in 2013, the BMA says.

In its submission to the pay review body, the BMA claims doctors are experiencing sizable real-terms pay cuts.

The submission says that doctors have made a significant contribution to constraining NHS costs and this must be recognised when the pay freeze ends.

Last week the government reaffirmed its commitment to a two-year pay freeze for NHS staff, which makes it three years for consultants.

The Department of Health said that staff satisfaction and recruitment and retention “remain healthy” and the total reward package in the NHS is favourable.

On pensions, the government said: “The government has made it clear that future public sector pensions will remain among the best available…any changes in pensions, including the proposed increase in contributions from 2012/13, do not justify upward pressure on pay.”

The BMA submission, however, pointed to the uncertain future of Clinical Excellence Awards; decreased pay banding for juniors; and, fewer programmed activities for hospital doctors.

It called on the pay review body, which is supposedly independent, to comment on the real impact of the pay freeze on the profession.

Consumer Price Index inflation is currently running at 5%.

The government submission concluded: “NHS pay must also been seen within the wider context of the current economic situation and cannot be immune from the serious economic challenges we face.”

The NHS pay freeze was announced in 2010 to support the government’s QIPP targets of saving £20 billion by 2014-15. NHS staff pay will be frozen in 2011/2012 and 2012/2013.

Read more on doctors’ pay scales.

The government has submitted evidence to the Doctors and Dentists Pay Review Body supporting its decision to freeze the pay of NHS staff for two years.

The pay freeze was announced in 2010 to support the government’s QIPP targets of saving £20 billion by 2014-15  in order to be able to meet rising demand.

In its evidence the government says: “Delivering these savings will be extremely challenging and any unnecessary increase in pay would make this more difficult, could undermine this ambition and may put at risk our ability to meet growing public expectations.”

NHS staff pay will be frozen in 2011/2012 and 2012/2013. Consultants were already experiencing a pay freeze in 2010/2011, so their pay will not rise over a three-year period.

Pensions are also under review and consultants are likely to have to work longer and make higher contributions for weaker benefits. A day of action by NHS staff is planned for 30 November. And there’s still no indication whether this year’s Clinical Excellence Awards programme will be run, as the profession awaits the government’s response to the pay body’s review.

In its submission on the pay freeze, the government suggests that staff satisfaction and recruitment and retention “remain healthy” and the total reward package in the NHS is favourable.

On pensions, the government said: “The government has made it clear that future public sector pensions will remain among the best available…any changes in pensions, including the proposed increase in contributions from 2012/13, do not justify upward pressure on pay.”

It concludes: “NHS pay must also been seen within the wider context of the current economic situation and cannot be immune from the serious economic challenges we face.”

Public sector staff earning a full-time equivalent salary of £21,000 or less will receive a £250 per year or more increase in salary during this period.

Read the full evidence.

See doctors’ pay scales.

Improvements in pay under the 2003 consultant contract have been wiped out by subsequent sub-inflation pay rises, the deputy chair of the BMA’s consultants committee has warned.

Figures from the NHS Information Centre show that doctors have been receiving below inflation pay rises since 2007, with the Consumer Price Index exceeding 2% for much of that period. Doctors’ salaries would be up to £10,000 higher had they risen with inflation over that three year period, says an article in the BMJ.

Consultants on the new contract had a mean basic salary per full time equivalent of £85,475 in 2007-8, which increased to £90,133 in the last quarter of 2010. Had their basic salary in 2007 increased each year with inflation according to CPI, they would be on £92,582 at the end of 2010, £2448 more than they actually received that year.

Consultants on the old contract had a mean basic salary per full time equivalent of £83,100 in 2007-8, which had increased to £86,300 by the end of 2010. If their basic salary in 2007 had increased each year with inflation, they would be earning £90,009 at the end of 2010, a difference of £3709.

Seniors are currently subject to a three-year pay freeze to 2013.

Commenting on the stats, Dr Paul Flynn, deputy chair of the BMA’s consultants committee, said: “Consultant pay has been falling behind inflation so that any improvement in consultant pay as a result of the new contract in 2003 has effectively been cancelled out.”

He added: “Consultants are looking at what they’re earning becoming less and less valuable as time goes on, and that leads to a sense of not being valued, and once people start feeling that they’re not being valued for the work that they do it can be very hard to keep up morale and keep going through what is a difficult job.”

Junior doctors have also had below inflation pay rises since 2007. In 2007-8, junior doctors got a pay award of 1.5%, whereas CPI inflation that year was 2.3%. Similarly, in 2009-10 junior doctors still got pay award of only 1.5%, whereas CPI inflation was 2.2%, an effective pay cut of 0.7%.

Foundation doctors and STs would be almost £1500 richer, equivalent to three months’ rent in many parts of the UK, if their mean basic salary per full time equivalent had increased each year with CPI.

As a group, junior doctors’ mean basic salary increased from £29,250 to £30,167 between 2007-8 and 2010, whereas it would have increased to £31,682 had it kept track with CPI inflation over this period.

“These figures hammer home the exact detriment junior doctors are facing financially, exacerbated by the steady increase in student debt that newly qualified graduates inherit,” said Dr Shree Datta, co-chair of the BMA’s junior doctors committee.

“At a time when the NHS faces one of the biggest upheavals in its history, valuing and engaging staff has never been more critical. Given that pay over the rest of the public sector, and in the private sector, has increased by approximately 2% over this period, it is difficult to justify the significantly lower increases for the most junior doctors. One potential outcome could be an adverse impact on recruitment and retention of doctors.”

In April 2011, CPI inflation hit 4.5%.

Read more on hospital doctor pay scales.