The Government will try to halt the annual battle over pay awards with almost six million public-sector workers by offering them settlements lasting three years.
Gordon Brown argued that the move would be good for economic stability, the fight against inflation and for the workers as they could plan ahead.
While some trade unions are prepared to enter talks with the Government, others demanded an "escape clause" if economic conditions changed and warned that the move should not be a vehicle to impose a straitjacket of 2 per cent rises.
The Cabinet wants to move quickly amid growing tension between the Government and workers including police and prison officers, teachers, civil servants and NHS and local government staff over Mr Brown's determination to limit this year's rises to 2 per cent. The unions will be looking for more generous increases by the third year of any long-term deals. The Home Secretary Jacqui Smith has written to the Police Federation offering a three-year agreement, and the Health Secretary Alan Johnson has opened talks with health workers.
The Prime Minister told his monthly Downing Street press conference: "If we can get this long-term pay settlement, not only will the economy be better off but people who sign up to this settlement will be better off as well. The whole purpose of this is to keep inflation under control."
Mark Serwotka, general secretary of the Public and Commercial Services Union, the biggest civil service union, said: "We suspect these proposals are about driving down the pay of hard-working staff who deliver the everyday things we take for granted." Paul Kenny, leader of the GMB general union, added: "What the Government seem to want to tie us into is a deal which will come at the bottom of the cycle."
George Osborne, the shadow Chancellor, said: "The real reason for the announcement is that, thanks to Gordon Brown's economic incompetence, Britain borrowed in a boom and now has the largest budget deficit in Europe."
Mr Brown acknowledged he had made a mistake by allowing speculation about a November general election to get out of control before he decided not to hold one. The Cabinet also approved plans for a new generation of nuclear power stations. The details will be announced by the Business and Enterprise Secretary John Hutton tomorrow.
POLICE: Could be the first group to receive a three-year pay deal. Currently locked in a bitter battle with the Home Secretary Jacqui Smith over her decision to scale back the 2.5 per cent rise recommended by their independent review body to 1.9 per cent.
PRISON OFFICERS: The Justice Secretary Jack Straw is planning to impose a ban on industrial action to avoid a repeat of wildcat strikes last summer over the Government's decision to phase in a 2.5 per cent pay rise.
TEACHERS: The National Union of Teachers may call the first national strike by teachers for more than 20 years over a planned 2 per cent pay offer.
MPs: The Senior Salaries Review Body has suggested a 2.8 per cent rise in April, rising with inflation over the following two years.
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