Alistair Darling has triggered a furious reaction from trade unions by refusing to rule out a public sector pay freeze in the battle to put the government�s finances back into balance.

Alistair Darling has triggered a furious reaction from trade unions by refusing to rule out a public sector pay freeze in the battle to put the government's finances back into balance.

The call for a freeze came from Steve Bundred, chief executive of the Audit Commission, the independent watchdog monitoring the efficiency of public service delivery in England.

Writing in the Observer, Mr Bundred suggested "a pain-free way of cutting public spending would be to freeze public sector pay, or at least impose severe pay restraint." He said teachers, nurses and others had "done well over the past decade" and should "tolerate some modest real reduction in earnings".

Asked about that call, the Chancellor said public sector pay for six million workers had to be "fair" to private sector employees as well, many of whom had seen their wages stagnate, or in some cases fall.

"Public sector pay has got to reflect prevailing conditions and, in particular, inflation has come way down," Mr Darling said. "And of course we have got to be fair with regard to people who work in the private sector."

While the writ of Mr Bundred's watchdog does not run to the devolved administrations, including Scotland, where Audit Scotland plays that role, any attempt to restrict public sector pay in England would be bound to have a knock-on effect on spending allocations elsewhere.

The suggestion triggered a predictable response from trade unions, whose ire was was further increased when Mr Darling did not rule out a tough approach on wage policy, which is due to be announced in the next few weeks.

Brendan Barber, the general secretary of the TUC, said the Audit Commission's simplistic solution of "hammering" public sector workers "was not acceptable".

"It will do real damage to the economy if there is downward pressure on wages. It will simply reduce demand in the economy and that would be the worst thing for recovery," he said.

Brian Strutton, national officer of the GMB union, added: "Ministers should stay out of it. They should give a higher priority to capping the earnings of the multi-millionaire elite in the City, where the greed shoots of recovery are already visible."

Shadow business secretary Ken Clarke said the move should be considered to counter the "absurd explosion" in public sector pay in previous years. Liberal Democrat treasury spokesman Vince Cable said an "absolute across-the-board freeze" in public sector pay did not make sense due to different contractual obligations but said a stop should be put to bonuses in the civil service.

On wider public finances, Mr Darling yesterday appeared to accept that the situation was more severe than he predicted in the Budget, but he denied the postponement of a Comprehensive Spending Review was a sign that Labour wanted to hide the reality of the situation from the electorate.

"It doesn't make any sense now to fix in detail what departments are doing but I have said the overall envelope will be much tighter," said Mr Darling.

"The priority now must be to get through the recession," he said, expressing continued confidence of a recovery at the turn of the year.