Public sector workers fear poor pay deals

Mr Brown's strict approach has fuelled concern among public sector workers that they face years of tight pay settlements, and a Liberal Democrat accusation that the chancellor is indulging in "fiscal flagellation".

The chancellor has told cabinet colleagues he intends to maintain the stringent financial discipline of Labour's first year in office by requiring the public finances to remain in surplus every year until the next general election, The Times reported.

The prime minister's official spokesman said of the disclosure: "It looked to me to be a pretty well-sourced story."

He added: "It is signalling that the government's tough approach on fiscal and financial matters will be maintained but also we want to get more money into those areas we have identified as priorities."

Union alarm

Unison's Rodney Bickerstaffe says Mr Brown is heading for trouble

However, Rodney Bickerstaffe, general secretary of the public services union Unison, was alarmed by the implications.

"We were given the clear impression that for two years, and two years only, the straitjacket of the last government's public spending limits would be followed. It would be disappointing, and unnecessary, should the government suggest that a further straitjacket will be imposed," said Mr Bickerstaffe.

Rodney Bickerstaffe says 2.6 per cent pay increases cannot continue

He argued that public sector increases of 2.6%, compared to 5.6% in private companies were unacceptable and would lead to resignations and poor motivation in the workplace.

"[People] don't want massive pay levels or huge numbers of extra jobs created for the sake of it. They want a decent day's pay for a decent day's work and the means to be able to carry on providing quality services to the public who, of course, vote in elections.

"Prudence and caution have their place, but there needs to be some balance introduced," he said.

Speculation over CPR

Mr Brown was thought to be looking for cuts of up to £20bn from the total bids put in by ministers as part of the year-long Comprehensive Spending Review.

The chancellor is due to announce the results of the CPR in July. Treasury sources have dismissed the report as 'speculation'.

However, The Times claims Mr Brown wants to maintain prudent Tory spending plans for the next two years.

It says the Chancellor is insisting that the current spending budget - excluding public investment - should not merely be in balance but should be in substantial surplus.

That will enable Mr Brown to achieve his "golden rule" that tax revenues must cover current spending.

Prudence at a price

Mr Blair's official spokesman dismissed Liberal Democrat talk of Mr Brown storing up a £50bn war-chest to finance a spending splurge later in the Parliament as "Teletubbies plus".

But David Laws, the Liberal Democrats' economics adviser, said: "This seems like fiscal flagellation, bringing us surpluses for the sake of it."

Mr Laws said that although Mr Brown's plans would probably allow the government to fulfil its early pledges on health and education by the end of the Parliament, other areas such as policing faced a major squeeze.