Kenneth Clarke's announcement yesterday of a third year of tight control over public sector pay will be challenged this week by leaders of 400,000 teachers.
Four teaching unions are due to submit a claim to their pay review body for a substantial increase above the inflation rate, to be phased in if necessary, and a limit on class sizes.
The submission from teachers' leaders will come in the wake of evidence published yesterday from the Chancellor which states that for the third year running all 5 million public sector employees should have to pay for wage rises through efficiency savings.
Teachers will argue that the failure to fund this year's settlement led to worse conditions of service, job losses and larger class sizes at the expense of children's education. Leaders of 500,000 nurses, midwives and health visitors have already called for an 8 per cent increase to ease recruitment and retention problems and to catch up with the teachers.
The calculation in Whitehall is that yesterday's submission by Mr Clarke to all five public sector pay review bodies, would translate into wage increases of about 2 to 3 per cent for public sector staff. The five bodies, which also cover NHS staff, members of the armed forces, judges and senior civil servants, will make their recommendation to the Prime Minister in the new year.
Mr Clarke said: "We're looking at the overall balance of the economy and it's clear we have to go on bearing down on public spending." Government policy was aimed at reducing public spending to the level where it was less than 40 per cent of gross domestic product.
In the evidence to the review bodies, the Treasury emphasised that there would be no central limit on settlements, but called for a realistic approach so that headline settlements on earnings should be "moderate and affordable". Efficiency savings could be made out of not replacing staff and re-arranging work schedules, Mr Clarke said. However, such savings should not all be distributed in higher pay, they should also help to finance better services.
Recruitment and retention of employees had remained good in recent years and therefore there was no case for "catching up" with other workers.
Interviewed on BBC Radio's The World at One, the Chief Secretary to the Treasury, William Waldegrave, said that for a number of years the public sector had been operating under the disciplines which were natural in the private sector. There was no organisation in the world that could not find any further efficiency gains, he said.
Alan Jinkinson, leader of the largest public sector union, Unison, said the Chancellor was "proposing to rob the poor to pay for tax cuts for the rich". Employees were being made to pay for the Government's "failed economic policies".