PHILIP Hammond has been accused by the trade unions of showing “arrogant contempt” for Britain’s 5.4 million public sector workers after he refused to deny leaked cabinet reports, which claimed he had said they were overpaid.

The Chancellor made clear he was not going to talk about “what was or wasn’t said in a cabinet meeting,” noting how it was easy to quote a phrase out of context.

However, the Treasury has already insisted Mr Hammond did not say what the cabinet leaks claimed he had said and Damian Green, the first secretary of state, insisted: “The Chancellor does not think that public sector workers are overpaid.”

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He told Pienaar’s Politics on Radio 5 Live that the UK Government “hugely respects” the millions of public sector workers, who did very important jobs.

“What is key is we have to strike the right balance between being fair in pay to public sector workers and fair to taxpayers to ensure we still have a strong economy so we can employ and pay those public sector workers,” said Mr Green.

Earlier, appearing on BBC 1’s Andrew Marr Show, Mr Hammond said he was happy to talk about the substantive issue of pay levels and noted how public sector workers enjoyed a 10 per cent pension "premium" over their private sector counterparts.

"Public sector pay raced ahead of private sector pay after the crash in 2008/9. Taking public sector pay before pensions contributions, that gap has now closed.

"But when you take into account the very generous contributions public sector employers have to pay in for their workers' pensions - their very generous pensions - they are still about 10 per cent ahead," he explained.

The row over the one per cent public sector cap has percolated up to the cabinet, where several ministers, including Boris Johnson, Sir Michael Fallon and Michael Gove have all backed lifting it.

But Mr Hammond is widely thought to have led the opposition in cabinet to any relaxation, stressing how there remained a need to balance the books.

However, he did hint that it was an issue he was prepared to look at, giving hope to some that there might be a loosening of policy in the autumn Budget.

"We do keep this under constant review and the fact that is apparently now well-known the Cabinet has been discussing this issue sends a clear signal that we do understand the concern both of public sector workers and of the wider public," said the Chancellor.

But the GMB said analysis showed the average full-time public sector worker had lost £8,953 in real terms between since 2010 and they now faced a further £4,073 in cuts by 2020; this totals more than £13,000.

"Philip Hammond has displayed arrogant contempt for public sector workers with his foolish and insulting comments,” declared Rehana Azam, the GMB general secretary.

"He is too removed from the reality of daily life to see the impact of seven years of pay pinching on ambulance workers, nurses and teaching assistants.”

Ms Azam said the Chancellor should try to live on a public sector worker's wage for a week to understand the struggle to make ends meet so many were facing as the cost of living rose.

“The truth is that the multi-millionaire Chancellor is out of touch with public opinion. Two thirds believe cuts to public services have gone too far and three quarters want to see a pay rise for public sector workers this year. It's time to end the public sector pay pinch," she added.

Christina McAnea for Unison said Mr Hammond’s alleged remarks were “nothing short of offensive” and added: “The care worker hurrying from house to house doesn't feel overpaid nor does the hospital cleaner working round the clock or the teaching assistant going the extra mile for the children she supports. They are all low paid, all vital and all in need of a pay rise now.”