Millions of teachers, civil servants and health workers on strike today have been told they face below-inflation pay caps for next four years as well as possible future wage reductions in the poorest parts of the country.
In what appeared a deliberately provocative move, the Chancellor, George Osborne, said the Government would limit public sector pay rises to one per cent until 2015.
He added that he had also asked pay review bodies to consider how public sector pay could be made "more responsive" to local labour markets – the first step towards an end to national pay deals.
The announcements – alongside an attack on strikers for damaging the economy and putting jobs at risk – angered unions, who said it made it harder for them to reach agreement with ministers on pensions reform.
"People assume it's always union leaders whipping up members to take action," said one senior official. "But the opposite is true. Osborne's pay freeze and this idea of local pay deals will make it harder for us to convince members to accept a deal on pensions."
The strike is likely to see up to 90 per cent of schools shut, most routine hospital appointments and operations cancelled and the suspension of most national and local government services. Ministers have been talking up likely disruption to schools and airports, where UK Border Agency staff are going on strike, but they are likely to suggest contingency planning and strike-breakers have minimised the problems.
Unions are confident they will be able to say the strikes had solid support.
Both sides say once the industrial action is over, a concerted attempt will be made to reach a deal on pension reform by Christmas. But there was concern yesterday that prospects for a deal had not been improved by the timing of Mr Osborne's announcements.
He told MPs further curbs on public pay were needed from 2013-15 because the two per cent rise assumed by some departments was unaffordable.
The Chancellor said a one per cent average pay rise – which will save £1bn by 2015 – was "tough" but was fair to those who worked to pay taxes.
Local government and health staff are among millions of public workers whose pay has been frozen for two years, exacerbating the pensions dispute.
The Chancellor will ask pay review bodies to report back by next July on tailoring public sector pay to local labour markets. Treasury aides said it was "not impossible" for workers' pay to go up with local salary bandings in place. But they said national public sector pay levels meant the private sector found it hard to recruit in some regions.
They cited research by the Institute of Fiscal Studies showing public sector staff are paid 10 per cent more than their private counterparts in parts of the UK.
Local salary bandings will come into force once salary freezes are lifted, the Treasury added. Brendan Barber, the TUC leader, said both announcements were inflammatory. "The Government is to step up attacks on public sector staff with a continuing pay cap and pay variation at a local level," he said. "This is on top of an increase in the state pension age for anyone under 40 – a toxic combination that will do nothing to get the economy moving again, but will simply hit consumer confidence."
Dave Prentis, head of Unison, said: "A bad situation will only be made worse by imposing a £3.6bn tax on public sector pensions, by holding down public sector pay and by throwing hundreds of thousands of public service workers onto the dole." Paul Kenny, leader of the GMB union, added: "The continuing squeeze on public sector pay will deepen the deflationary pressures." Paul Noon, head of the civil service union Prospect, said: "Our members are dismayed that on the day before they hit the streets over pensions, the Chancellor is aiming yet another punch at them. He should get serious about tackling the outrageous levels of high pay in our economy. It's not militants who are itching for a fight, it's the Government."
Ed's problem: Should he cross picket line?
Labour MPs, including Ed Miliband, face having to cross union picket lines to get into Parliament today.
House of Commons kitchen workers, doorkeepers, security staff and Hansard reporters are all due to walk out of work and intend to picket "as many entrances" as possible.
"We would expect Labour MPs to respect the strike and not cross our picket lines," said Richard Simcox of the PCS union.
Members of the GMB union will also take part. "I wouldn't think any Labour MP would cross a genuine picket line for a legal strike," said Keith Henderson, the GMB regional organiser for London.
Case studies: Why I'm going on strike
Tristan Szoka, 28, works for Brandon Trust, a care provider in Redruth, Cornwall
"We have just had our wages cut by 40-50 per cent. This is one of the main reasons for me going out [on strike], as the pensions thing does not affect me too much. I used to earn £21,000, I now earn just over £14,000.
"I think it's important to strike. My mum works for the NHS as an occupational therapist technician and she's just coming up for retirement. It won't affect her at the present time, but with the proposed changes she'd have to work another five to 10 years and she's 66 – she wants to retire.
"Not wanting to be ageist, but are people aged 65 to 70 right for the NHS workplace? She supports the action. I paid into my pension for six years, but now I think, 'What's the point?' "
Clare Williams, 45, a health worker and Unison representative, Newcastle
"The government proposals are not fair. The Hutton Review made clear that public-sector pensions are affordable. This is about making public-sector workers contribute even more to pay off the deficit despite already having had a two-year pay freeze."
Sean O'Donoghue, 53, educational psychologist employed by Norfolk County Council, lives in Cromer, Norfolk
"I see this as a stealth tax more than anything else, with £900m of the increased contributions going towards the deficit. The figures the Government has been putting into the media are so out of kilter with reality it is shocking. I feel very angry. I speak from a position of not being anywhere near the bottom in terms of salary and I fear for young people coming into the profession. It is a long haul to be an educational psychologist. A lot of debt will be accrued and now they will be asked to pay an awful lot more. I have no mortgage and I am relatively comfortable but that is not what striking is all about."
Dr Robin Bevan, 45, head teacher at Southend High School for boys, lives in Southend
"There are several issues as to why I am striking. The first is the effect on my own staff, the people who teach in this school. If these changes go through, they will lose more than £5m in total lifetime income if they all live to 85, according to the tot-up we have done. Obviously a rough figure, but the scale of the changes are large. The extension of the retirement age to 68 is another factor on the health and welfare of our teachers.
"I genuinely understand that parents will be frustrated by the disruption, but they have to ask if one day's disruption is a fair price to pay for the preservation of the future of education provision."