Chancellor Gordon Brown was due to issue a sharp warning today to both the public and private sectors against inflation-busting pay awards.

In a keynote address to the British Chambers of Commerce in London, he will tell the public sector unions that the Government will not tolerate "irresponsible" pay demands, while appealing to the private sector for restraint.

His comments are likely to anger the public sector unions, which are embroiled in a series of disputes, while facing the loss of 40,500 Civil Service jobs as part of the Government's efficiency drive.

However, Mr Brown will argue that with inflation at its lowest level for 30 years, there is no reason for workers to expect big awards.

He will warn that inflationary pay rises would jeopardise "hard-won economic gains in jobs, prosperity and stability".

"I can tell everyone who depends on a wage or salary that, under our new model of Bank of England independence, inflation is now less than 2% and is set to be just 2% in the next and subsequent years and that in this upturn Britain must seize the opportunities by being fully competitive," he was expected to say.

"Both the private sector and the public sector must show pay responsibility. Our message on pay is clear: there must be no return to the bad old days of pay irresponsibility in the private sector and we will not tolerate any irresponsibility in the public sector.

"Once a stop-go economy, Britain is now one of the most stable. We will do nothing to put that at risk."

Wednesday April 21, 2004