MPs are facing an outcry after it was announced they are in line for a pay hike to £74,000 while the rest of the country suffers austerity.

The taxpayer will be hit with a £4.6 million bill for the increase which will take effect after the general election in 2015. However, the Independent Parliamentary Standards Authority (Ipsa) also proposed to offset the costs with curbs to pensions, expenses for dinners, TV licences, taxis, and "golden goodbyes".

It insisted that the overall burden on the taxpayer will only go up by £500,000 when the package comes into force. The regulator is also urging politicians to publish an annual "MoT" explaining the work they have done for the money they receive.

Unions immediately demanded matching 11% increases for their members, while a number of MPs broke cover to condemn Ipsa for opening them to public vitriol.

Under the shake-up, the current salary of £66,396 will rise to £74,000 in May 2015, at a cost of £4.6 million once extra national insurance contributions are taken into account. From then wages will rise annually in line with average UK earnings, a mechanism the regulator hopes will ensure the situation is resolved for the long term.

The existing final salary pension scheme will be downgraded to career average - as happened across the rest of the public sector some years ago. In total, the pension changes will save £2.5 million in the first year, according to Ipsa.

Benefits will accrue at 1/51 of salary per year, rather than 1/40. But they will have to contribute less - 9.2% of salary instead of 13.75% - and the retirement age will be the same as for the state pension. Death in service benefits will also be reduced from four and a quarter times salary to twice salary, with bereaved spouses entitled to less.

The proposals will go out for consultation before Ipsa finalises the arrangements in the autumn. Party leaders have signalled alarm at the prospect of a pay rise above the 1% cap imposed on the public sector for 2015-16 - but it would require a change in the law to prevent the regulator pushing it through.

In a phone in on BBC Radio 5 Live, Sir Ian said the salary rise was best described as "catch up" after recommendations from successive pay bodies were rejected by governments. He said it was "wrong in itself" to keep MP pay low, arguing that the expenses scandal had been the result of too much restraint.

A Downing Street spokesman said: "The cost of politics should go down not up. And MPs' pay shouldn't go up while public sector pay is, rightly, being constrained. Ipsa is consulting on its proposals, which it will review after the next election as it is obliged to do by statute. It is independent, but the Government will repeat our view on the need for restraint."

© Press Association 2013