The Conservative Party this week outlined a series of cuts and wage freezes designed to rein in government spending. George Osborne, the Shadow Chancellor, announced: “We are all in this together.” But who would suffer most from the austerity measures? Times Money examines what the proposals would mean if the Tories won the next election.

Pay freeze for public sector workers earning more than £18,000

This would affect five million people, including teachers, police officers, nurses and firefighters. In the past wages have increased for these workers by about £1,000 a year. Mr Osborne says that the wage freeze will last only a year, from April 2011 to April 2012.

Last year the average wage for a teacher was £35,779, while nurses earned £28,241, according to the trade union Unison. About 800,000 full-time workers, such as care assistants and administrative staff, earn less than £18,000 and can still expect a pay rise.

Scrap Child Trust Funds for families earning more than £16,000

“Handing out new baby bonds is a luxury that we can no longer afford,” Mr Osborne said. About three million children have a Child Trust Fund (CTF), which allows parents to save up to £1,200 a year tax-free for their child’s future. When a child is born the Government gives all parents a £250 voucher to open a fund (or £500 if families are on income support) and another top-up voucher for the same amount when the child turns 7.

The Conservatives say that only disabled children and the poorest one third of families will receive new Child Trust Fund payments. This would save £300 million a year.

Other families who already have a CTF could continue to save £1,200 a year tax-free, although if their child is under 7 they will not receive a top-up. Most newborn children would not be able to have a CTF.

Scrap tax credits for families earning more than £50,000

About 150,000 families earning between £50,000 and £58,000 a year receive child tax credit. The Conservatives plan to start means-testing the family element of the child tax credit, worth up to £545 a year, at a lower threshold of £40,000 to ensure that wealthier families do not receive the benefit. This would save £400 million a year.

Child benefit, winter fuel payments and free TV licences would all be preserved.

Cut incapacity benefits

There are 2.5 million people now claiming incapacity benefit, which is worth between £67.75 and £89.80 a week. Over the next three years the Tories want to introduce tests to see if these people are fit to work — if they are, they will be placed on a jobseeker’s allowance, which pays a lower rate, of up to £60 a week. This would save more than £1 billion over the next Parliament, of which £600 million would be used to help get unemployed people back into work.

Cap Civil Service pensions

Public sector workers who have yet to retire would have their future pension income capped at £50,000 a year. (Those who have already retired would not be affected.) Senior civil servants and local council executives have generous pension schemes — civil servants contribute only 3.5 per cent of their salary into their pension, while their employer (the taxpayer) pays between 17.1 per cent and 26.5 per cent.

Stopping taxpayer-funded increases to public sector pension funds already worth more than £50,000 a year would reduce the pensions deficit by hundreds of millions of pounds over the next decade.

As part of a crackdown on Whitehall bureaucracy, ministers’ pay would be cut by 5 per cent next year and then frozen for the rest of the parliamentary term. The number of MPs would be reduced by 10 per cent, and Parliament’s generous final-salary pension scheme would be closed to new members. Any request to pay a public servant more than the Prime Minister receives would have to be approved by the Chancellor.

What about the 50p tax rate?

In this year’s Budget, Alistair Darling, the Chancellor, announced that from next April the top rate of income tax would rise to 50p in the pound for those earning more than £150,000. Mr Osborne says that he does not want this as a “permanent feature of the tax system” but that the measure would be kept for at least as long as the public sector pay freeze.

The Conservatives have said in the past that only millionaires should pay inheritance tax, but this week they admitted that this approach was no longer realistic. “Of course, this financial crisis means it cannot be a priority for our first Budget, but in the lifetime of a Parliament we will honour that pledge,” Mr Osborne said.

Any news for small businesses?

One piece of promising news for aspiring entrepreneurs: any new business started in the first two years of a Conservative government would pay no employer national insurance on the first ten employees hired during its first year.

Change to state pension age aims to save £13bn a year

Millions of people would be forced to retire a year later than planned under Conservative Party proposals unveiled this week.

However, the Opposition matched Labour’s pledge to restore the link between the state pension and average earnings, which would cause state pensions to rise more quickly.

The state pension age for men would rise to 66 from 2016, eight years earlier than the Government plans, while the state pension age for women would rise to 66 from 2020. This would save £13 billion a year, according to the Tories.

Experts pointed out that the default retirement age of 65 would therefore have to change.

George Osborne, the Shadow Chancellor, emphasised that no one who is drawing the state pension today, or who is approaching retirement soon, would be affected.

Tom McPhail, of Hargreaves Lansdown, the independent financial adviser, says: “The Government’s original plan to raise state pension age from 2024 through to 2046 is already widely seen as too little, too late.

“Drawing a pension at 66 will still mean a long retirement for many — a man reaching age 66 in 2016 can expect to live for a further 18.9 years, while a woman could expect 20.9 years of life.”

The link between state pensions and earnings would be restored no later than 2015. Margaret Thatcher severed this link in 1980 and the state pension currently increases by the Retail Prices Index.

Hargreaves Lansdown estimates that a 58-year-old today would have to save an extra £55 a month for the next seven years to make up the £4,797 income lost from one year’s state pension.

A 49-year-old would have to save an extra £23 a month for the next 16 years to still retire at 65.