By Elizabeth Piper
LONDON (Reuters) - An early election was meant to bind the Conservatives to Theresa May's agenda for at least five years, but instead it has badly shaken the governing party with ministers questioning its seven-year pursuit of austerity.
A weekend of anonymous briefings by members of the prime minister's top team of cabinet ministers against her chancellor, Philip Hammond, shows the level of panic in the party after it lost its majority at last month's election, two Conservative sources said.
Austerity, sold to voters as the need for Britain to "live within its means", has been the hallmark of the Conservative government since it took power under David Cameron in 2010.
But, desperate to win back voters lost during an ill-judged election campaign led by May, some ministers want Hammond to loosen the budget reins and give hospital staff, firefighters and police officers a pay rise. The proposal risks worsening divisions in the party just as Britain starts the fraught business of negotiating Brexit.
Hammond, returning to the political front line after being sidelined for months by May, remains committed to bringing down the deficit - frustrating colleagues who fear that generous spending pledges by the opposition Labour Party are winning over voters.
"There are millions of public sector workers and we need their votes," a senior Conservative Party source said.
"Everybody is bored with austerity."
The Conservative Party, once called the nasty party by May for its "petty feuding and personal sniping", risks looking out of touch, the source said, especially after three Islamic militant attacks and a devastating fire at an apartment block have stretched Britain's police and firefighters.
"Everyone's thinking about the next election that's why the pay cap (limiting increases in public sector salaries) has come into play, and they are talking more to their electorate," the source said.
May, whose authority is in tatters after the June poll, has all but lost control of her ministers.
Hammond has made a comeback after being left in the cold during the election campaign and weakened by what a senior Conservative described as a "toxic" relationship with the prime minister's former top aides.
His push for a Brexit that puts business and jobs first, rather than curbing immigration, has not gone down well with eurosceptics in the party, the sources and one Conservative lawmaker said.
"OVERPAID"
May, 60, called for her team to show the "strength and unity" Britain needs, and to keep discussions private after unnamed ministers said Hammond told the cabinet that public sector workers were overpaid.
The hostile briefing was aimed at undermining Hammond for his uncompromising stance on public sector pay, the source said.
Hammond did not deny the comment and told the BBC on Sunday that public sector workers received about 10 percent more than those in the private sector when "very generous" pension contributions from their employers were taken into account.
Pay rises for more than 5 million public sector workers are set by independent pay review bodies, which consider evidence from the government, employers and unions. But the pay cap, introduced in 2013, has limited any increase to one percent.
Removing it would mean that every one percent increase in pay would add about one billion pounds to the government's 106 billion pound wage bill, according to Reuters calculations. That would make it even harder for Hammond to meet his target of balancing the budget by the mid-2020s.
With signs growing that Britain's economy is struggling for momentum, the outlook for the public finances has clouded over.
Households are strained by rising prices, fuelled by the pound's sharp fall after last year's Brexit vote, which is likely to limit tax revenues in the months ahead.
With the police, teachers, firefighters and nurses calling for the cap to be removed, the government has said it would respond to recommendations on pay increases as they are made.
But a source close to May said there would have to be pay increases if Britain wanted to be able to recruit workers after Brexit, when there will be fewer migrant workers from the European Union.
"There will be movement on the pay cap because Brexit means there'll be hiring issues," the source said.