The Cayman Islands' civil service should slash its wage bill by eight to 10 percent with immediate effect, an independent commission report has recommended.

The report, which was written by James Miller and David Shaw and is dubbed 'The Miller Report', said that the cuts should be made on a scale system, with higher grade jobs taking bigger reductions in salaries, according to a report in the Caymanian Compass.

It comes after Bermuda's own Government came under fire for its spending and reluctance to trim its expenses.

Civil service head Kenneth Dill, however, sent out a four-point plan approved by Cabinet to all department heads in November last year banning first and business class travel and imposing a freeze on hiring new consultants for the rest of the financial year, as reported by The Royal Gazette, who obtained a copy of the e-mail.

Sources told this paper in December 2009 that civil servants had been told to cut spending by 20 percent, reduce travel costs and keep overtime to a bare minimum.

The memo followed a directive issued to ministries at the start of the 2009/10 budget cycle to cut costs by 10.5 percent in order to allow new programmes to be introduced without tax hikes.

The Cayman report found that the government's personnel costs were "crippling the Cayman government's ability to restore its fiscal balance" and by any reasonable standard were "excessive and unsustainable".

In a section of the report dedicated to employee costs, the report authors agreed with a statement made in the Cayman's Legislative Assembly in 2005 by now-Cabinet Minister Rolston Anglin, who said the cost of civil service was "strangling the financial resources of the country".

The report looks specifically at core government operating expenses which increased from $335 million during the 2004/05 financial year to $537 million in the 2008/09 financial year, while personnel costs rose from $162 million to $252 million in the same period.

Looking at personnel costs versus economic growth, a graph in the report showed that while personnel costs climbed sharply between the budget years 2005/06 and 2008/09, the gross domestic product rose less so through 2007/08 and then fell the next two years.

"This rate of expansion cannot continue in the long term without causing irreversible damage to the private sector and making Cayman's economy uncompetitive," the report stated. "It would change Cayman's reputation from a place to do business to a place to avoid."

The report also disputes the common notion of the reason behind the Cayman Islands going to the financial markets to borrow $312 million.

"Many people commented in Cayman that the reason for the borrowing was because of the capital being spent on two new schools and the new government office building," it stated. "In fact, the cause of much of the borrowing is the need to pay the...excess personnel costs. Without the recent increase in personnel costs over and above growth in GDP, both new schools could most likely have been fully funded from normal revenues."

In the 2008/09 financial year, the Cayman government's personnel costs amounted to 51.76 per cent of all revenues - something the report calls "an extraordinarily high figure when compared to other countries".

The report notes that the government workforce, when combining core government and employees in statutory authorities and state-owned authorities is 6,037, or about 15.5 per cent of the estimated labour force.

"...the data show that despite not having many of the responsibilities held by larger nations, such as assessing and collecting direct taxes, extensive welfare systems and national defence, the level of government employment is on a par with or exceeds that of many of (the other countries)," the report found.

Since the Cayman Islands has no income tax, the report points out that the net-of-tax salaries of the top five grades of Cayman Islands government workers were all higher than the net-of-tax annual income of the UK Prime Minister.

The report concluded that Cayman's total government personnel cost was "on par with the most expensive, advanced economies in the world, although those countries' civil servants have both wider and more responsibilities".