Caps on public sector pay and pensions have been announced as part of the chancellor’s pre-Budget report.

Alistair Darling told the Commons that caps of one per cent on public sector pay rises – excluding those for the armed forces – would come into force in 2011, and by 2012 pension rises for NHS workers, teachers and the civil service would also be capped.

Darling believes the moves will provide £4.5bn in savings, added to the £12bn in efficiencies the government wants to realise.

“These are tough choices, but they are essential if we are to stick to our plan to halve the deficit and protect the front line,” Darling said.

The tightening on pay and pensions policy comes just days after the government announced stringent measures to reduce the size of the senior civil service and curb high salaries in the upper echelons of the public sector.

Darling also confirmed a long-held suspicion that the Treasury would forgo holding a comprehensive spending review, setting out departmental spending levels for the three years from 2011.

“As long as extraordinary uncertainties remain in the world economy, this is not a time for a spending review,” he said. 

“We have already set out clear and firm departmental budgets for the next financial year, but to try and fix each department’s budget now, for the next five years, is neither necessary or sensible.”

But Darling did reveal that £5bn in cuts to current spending plans had already been isolated. He said that cutbacks in major IT projects, reform of legal aid, outsourcing of inefficient prisons and cutting spending on residential care were among the “tough choices” already made by government.

In what will be seen as a pre-election gambit, the chancellor said he was able to guarantee small real-term increases on NHS and schools school spending from 2011.

The announcements on public sector pay and departmental spending were complemented by a range of tax adjustments.

Shadow chancellor George Osborne lambasted the statement as a “pre-election report” and said Darling had avoided the tough decisions on spending cuts.

"We were promised a pre-Budget report and what we got was a pre-election report. They have lost all the moral authority to govern today," Osborne said.

Unions have already strongly criticised the freeze on public sector pay from 2011, with TUC general secretary Brendan Barber saying the move would damage established, independent review systems.

“What we need is a fair tax system to make sure that those who did so well out of the boom years make a proper contribution, rather than expecting public sector workers, many of them low-paid, to pay the price."

Unison general secretary Dave Prentis said: "Our members feel angry and betrayed. It is just not on to make nurses, social workers, dinner ladies, cleaners and hospital porters pay the price for the folly of the bankers.

"The people who earn most should pay the most. Instead we have the disgraceful spectacle of rich bankers threatening to leave the country if they don't get their massive bonuses."