Leaders' fury as watchdog sets up £7600 (11%) pay hike for MPs

It is expected to try to temper criticism by announcing a tougher-than-expected squeeze on MPs' pensions in a bid to cancel out the £4.6 million cost to the public purse.

A £2.5 million saving by downgrading the final salary scheme to career average - matching the rest of the public sector - had already been proposed alongside a crackdown on various perks.

All three main party leaders have condemned the increase at a time of national austerity, with both Labour's Ed Miliband and Liberal Democrat Nick Clegg pledged to shun the extra money.

David Cameron has stopped short of matching that pledge - and is under pressure from some Tory MPs to back the increase - but has said Westminster pay should not rise while others face restraint.

However, following a consultation on the proposals - first set out in July - Ipsa is set to press ahead.

And MPs have no way to prevent the rise coming into force after the next general election - unless they change the law set up in the wake of the expenses scandal to stop them setting their own pay.

Research by Ipsa found that two-thirds of MPs believe they are underpaid and the watchdog's chairman Sir Ian Kennedy has insisted politicians' pay must "catch up" after years of being suppressed.

But many politicians are also furious at Ipsa's expenses regime and suggested they could back a move to strip it of the responsibility to set pay in order to destroy its authority.

A Conservative source said Mr Cameron had been "clear that we are committed to reducing the cost of politics" and that the Prime Minister had consistently called for "restraint" in MPs' pay.

A Labour source said: "We will obviously wait to see what the final proposals are, however, as we have always said, any rise in MPs' pay must be considered in the light of the current economic climate and the cost-of-living crisis facing people across the country.

"It must also be seen in the context of the decision to limit or freeze many workers' pay increases in both the public and private sectors."

Commons deputy speaker Lindsay Hoyle, a Labour MP, cautioned against interfering with the system.

"I agree that MPs should not vote on their own pay," he said. "It should be left to an independent body. It's not in the gift of the party leaders."

In July, Mr Miliband predicted that Ipsa would drop the significant rise, but added: "If this was to go ahead I wouldn't be accepting this pay rise."

Mr Clegg said then that it was the "worst time" to advocate a double-digit pay rise.

Ipsa's original report conceded there is no "compelling evidence" that MPs' current salary level is deterring candidates, making people leave Parliament, affecting the diversity of the House or lowering the standard of ministers.

But Sir Ian argued it was "wrong in itself" to keep MP pay low, arguing that the expenses scandal had been the result of too much restraint.

Ipsa said it had looked at increasing the current salary of £66,396 to anywhere between £73,365 and £83,430, but opted for the lower end "in recognition of the current difficult economic circumstances".

After 2015 wages would increase annually in line with average UK earnings.

Among measures already on the table to offset the cost of the rise - which is 9% higher than the rate MPs will be on by 2015 - was an end to "resettlement grants" of up to £65,000 for departing MPs.

Under the plans that would be reduced to two weeks' pay for every year of service if they are under 41, and three weeks if they are older by 2020.

A £15 dinner allowance would be scrapped, claims for tea and biscuits would not be allowed, and taxpayer-funded taxis home only allowed after 11pm.

There would also be a crackdown on claims for running second homes, with costs such as TV licences and contents insurance no longer being met.

Mathew Sinclair, chief executive of the TaxPayers' Alliance campaign group, said: "Taxpayers will be furious that the pay rise comes at a time when MPs urge public pay restraint and the Chancellor tells us he can't afford to ease the burden of taxes on hard-pressed households and businesses.

"Ipsa's own polling and research shows that the current level of pay to be broadly fair and that the public simply do not back the increase.

"This announcement amounts to an unaccountable quango putting up two fingers to taxpayers. The rise must be rejected."

A Downing Street spokesman said: "MPs' pay is a matter for Ipsa. The Government has submitted its views to Ipsa as part of the body's consultation on MPs' pay.

"It made it clear that, while Ipsa is an independent body set up by Parliament, in future decisions on remuneration it expects Ipsa to take into account the Government's wider approach to public service pay and pensions.

"We believe that the cost of politics should be going down, not up."

Speaking on the Sky News Murnaghan programme, senior Labour backbencher Diane Abbott said the pay rise "would not arise" because Ed Miliband's new government would stop it on taking office after the 2015 election.

Defence Secretary Philip Hammond indicated that he would not accept the rise and suggested the Cabinet could take a collective decision on what to do with the extra cash.

While there were good arguments to be made for an increase, this was "not the moment", he said.

"So long as I'm the Defence Secretary presiding over a situation where the troops that serve our country so brilliantly are facing a 1% pay rise, I won't be taking a pay increase," he told Pienaar's Politics on BBC Radio 5 Live.

"Whatever the rights and wrongs of whether MPs' pay is too high, too low, comparable to other people, at a time when we are asking people across the public sector - nurses, doctors, teachers - to accept pay restraint, Members of Parliament have to be seen to be leading the way.

"I fear, in a period of public sector pay restraint when people across the country are feeling the pinch, people are going to notice the pay increase but they are not going to notice all the other reductions in the cost of keeping MPs."

He declined to say what he planned to do with the money, such as give it to charity.

"I suspect that the Prime Minister would want cabinet ministers to make a clear, collective statement about what they would do," he said.

"I suspect there will be a strong mood in the Cabinet that we all need to say the same thing."

Mr Hammond said Ipsa - which has been heavily criticised by MPs over its reform and operation of their pay and perks system - was "aggressively asserting its independence".

"The Government would say that although Ipsa is an independent body and must be allowed to be independent, it also must have regard to the broader mood of public opinion and the Government's public sector pay restraint policy."

There was a case that the present salary levels could put off people who were "not very wealthy but are in good professional jobs who have families to support" and could not afford a pay cut to be an MP.

"But this is not the moment," Mr Hammond said.

Shadow chancellor Ed Balls said on the Sky News Murnaghan programme: "We will get this report on Thursday, so we will see what they say - as far as I can see, they have done this report entirely out of any context of the real world.

"How can they possibly be saying we should discuss pay comparability when everybody else is seeing their pay frozen or falling.

"I think it is preposterous we should be having this discussion and as a shadow chancellor, how could I possibly say to Labour MPs at this time, with the economy like this, with the economy under real pressure, there's a cost of living crisis, that they should take a pay rise?"

Conservative MP Sir Peter Bottomley said the independent panel set up after the expenses scandal should be allowed to do its work to make sure MPs' pay was at roughly the right level at the start of each Parliament.

He said he would not back an immediate rise but recommended it happen at the start of the next Parliament.

Speaking on the Sky News Murnaghan programme, he said: "Some MPs in some countries get virtually nothing, they are expected to make it by corruption or favours. In some countries like Singapore, they are not supposed to be corrupt, they get paid over a million dollars a year.

"I don't think that helps us very much - the real question is to recognise the rich can be an MP without difficulty, the poor can, someone who is unemployed will find they are better off as an MP, someone who has a working spouse is fine, the very elderly with few expenses can be an MP, and probably the person at 21 can be an MP.

"The problem comes if a GP in medicine said 'I'll kindly volunteer to be an MP for a Parliament or two', how much of a reduction do you want her to take?

"If the head of a large primary school becomes an MP, how much of a reduction should they take in their family's standard of living? That's the sensible way to ask it.

"I think having an outside body give a recommendation is sensible, the most sensible answer is to only say MPs get an increase not because of inflation but at the beginning of each Parliament (put them) at the roughly the right level."

And he added: "Each leader will say this is the wrong amount at the wrong time... the fact is, it was the leaders who set up the Ipsa system who are given the responsibility to set the level of pay and people can't interfere with it.

"The only way MPs could overturn this is to defy their leaders and pass a law saying Ipsa is abolished or it will be ignored. That's impractical given the public interest in setting up Ipsa in the first place."