Shadow chancellor Ed Balls challenged George Osborne today to boost the income of the lowest-paid public sector workers by ensuring that executives on high salaries bear the brunt of his 1 per cent cap on pay rises.
Mr Balls wrote to the Chancellor calling on him to allow more generous rises at the bottom of the income scale, while remaining within his 1% average settlement cap, by reining in increases at the top.
Unions responded with fury to Mr Balls's announcement last weekend that Labour would not oppose the coalition's plans for a two-year pay cap in the public sector, with Unite general secretary Len McCluskey denouncing it as "a victory for discredited Blairism at the expense of the party's core supporters".
But the shadow chancellor today played down the prospect that Unite, or any other union, will withhold funding from Labour - or even break their historic links with the party - in response.
"I don't think any trade unions are going to disaffiliate," Mr Balls told a Westminster lunch. "I don't think they should, but that's their decision."
He insisted that trade unionists he had spoken to accepted his argument that "jobs must take priority over pay" in an economic situation where austerity measures have failed to deliver growth and unemployment is rising.
But he said that Mr Osborne could do more to share the pain of the cap more fairly.
In a letter to the Chancellor, he pointed out that two years of 1% pay rises were worth more than £3,800 to a council chief executive on £190,000 - but only £300 to a teaching assistant on £15,000.
Instead of applying a blanket 1% cap to all workers, Mr Osborne should tell pay review bodies and local government employers to weight rises in favour of the low-paid, he said.
Mr Balls accused the Chancellor of failing to deliver on a promise to public sector workers in 2010 when he imposed a two-year pay freeze, but said there would be a £250-a-year "uplift" for 1.7 million of the lowest-paid.
Evidence from the House of Commons Library suggests that around one million low-paid workers, mainly in local government, have not received that uplift, he said.
"Our challenge to George Osborne is that we will back him on continued pay restraint. Given his failure on the economy and given rising unemployment, jobs have got to come before pay and pay restraint is needed, but it's got to be done in a fair way."
He added: "A flat-rate 1% isn't fair and the right thing for him to do, to do this in a fairer way and a guaranteed way, is to make sure that 1% on average means more pay for the low-paid workers and more restraint at the top."
Mr Balls declined to say whether Labour would back an increase in UK contributions to the IMF, which Chancellor George Osborne is expected to put before Parliament in the coming weeks.
The international financial body yesterday said it expected to request a further 500 billion US dollars from member-nations, in a move designed to protect the global economy from the continued crisis in the eurozone. This could see the UK underwriting a further £17 billion or more in lending.
Mr Balls said Labour would look "very carefully" at any proposals put forward by the Chancellor before deciding whether to back them in the Commons.
But he made clear that, before any IMF intervention, it was for eurozone states - and particularly Germany - to take the steps which would allow the European Central Bank to shore up the economies of ailing states like Greece.
"We are strong supporters of the IMF, and always have been," said Mr Balls. "It has a hugely important role to play in supporting countries in distress, which includes eurozone countries in distress.
"The fundamental problem the eurozone has at the moment, and the reason why Spain and Italy are now in such danger, is you have a eurozone with a central bank which cannot play the proper role a central bank should play because its main political backers refuse to back the ECB playing that role."
Germany's position was "related to a view about the need for extreme austerity, which even the rating agencies are saying is going to not work and be counter-productive", he said.
"In those circumstances, if IMF money was going in and the IMF was trying to play the role that the ECB should be playing, if the IMF was putting money in at a time when austerity was clearly making things worse not better, the IMF's contribution would not be solving the problem, it would be making the problem worse.
"It entirely depends on whether the eurozone is getting its act together. If it doesn't, and thinks instead that the IMF can come in and do what the ECB should be doing, that would be massively counter-productive."
The situation of Greece, in particular, was "catastrophic" and he was "pessimistic" about its chances of staying in the euro, he said.
Mr Balls said that the past week had been "hugely significant" for British politics, as the debate shifted from who was to blame for the financial crisis of 2008/09 and started to look forward to the likely economic situation at the time of the 2015 election.
He said he had coined the "no more boom and bust" phrase that became Gordon Brown's mantra, but admitted that "in retrospect that was a rhetorical error".
Asked if he would bet on Ed Miliband remaining Labour leader until the 2015 poll, he replied immediately: "Of course." But when asked how much money he would stake, he said that he was not a gambling man, telling reporters: "We all have our vice, and mine is Diana Ross."
Mr Balls confirmed that he told his wife, shadow home secretary Yvette Cooper, in 2010 that if she wanted to run in the Labour leadership contest he would stand aside and support her.
And he added: "If the situation ever arose like that again in the same way in the next 20 years, that's what I would do again."
Mr Balls said that he would be framing this week's Spectator front cover, which tipped Ms Cooper as a future leader. And asked if he agreed with the magazine's headline which said that she was "Labour's Iron Lady", he replied: "Yes. People want an iron shadow home secretary and they've got one."