The government is to hold down public-sector pay increases to about 2% over the next three years, provoking the fury of trade unions, which have already been threatening a "winter of discontent" unless the government relaxes pay norms in the next round of negotiations.
The pre-budget report commits the Treasury to "public pay settlements consistent with the government's achievement of the government's inflation target of 2%" and urges departments to ensure "total pay bills represent value for money and are affordable within departments' overall expenditure plans".
The tough stance on pay has come under fire from unions because they are having increasing difficulty in holding back members from taking industrial action.
Even the First Division Association (FDA), which represents top civil servants such as Sir Gus O'Donnell, the cabinet secretary, warned that the government was going too far in holding down pay.
Dave Prentis, general secretary of Unison, the country's largest public-service union, said: "Investment in public services must include investment in staff and training. Pay is a crucial factor in maintaining morale.
"Putting an artificial limit on pay across the public sector restricts genuine attempts to reward staff for successful reform and will store up industrial problems for the future," he said.
Brendan Barber, the TUC general secretary, welcomed much of the chancellor's statement but said: "Some parts of the public sector have received a very tight settlement.
"The government must understand that it cannot expect public servants to fund this through further cuts in their real pay after this year's staged awards."
Some of the strongest criticism came from the FDA, which has opposed strikes by fellow civil servants in the Public and Commercial Services Union against job cuts and privatisation.
Jonathan Baume, general secretary of the FDA, said: "The chancellor's further announcement of a 2% cap on public-sector pay bills severely undermines the role of the independent pay review bodies, which determine pay levels for many key public sector workers.
"This limit is especially unwelcome and unwarranted in the light of recent research that shows no link between public-sector pay increases and inflation in the wider economy," he said.
"There are more sophisticated levers that the government can pull to both motivate public-sector staff and deliver the required gains in efficiency and productivity."
The biggest row looks like being in Whitehall, where 300,000 civil servants are being balloted over whether to take further industrial action.
Not only is pay being held at 2% but £30bn in savings is being demanded to improve efficiency over the next three years. Worst hit will be the Department for Work and Pensions, which will be expected to take a further 5% in year-on-year cuts.
Mark Serwotka, the PCS union general secretary, said: "Services are already being cut to the bone.
"Now the government have signalled - under the cover of yet more so-called efficiency savings - that they will go back on their own advice by cutting services to the marrow, without any real understanding of the damage it will have on the quality of services.
"The so-called efficiency agenda has already resulted in the spiralling use of consultants, backlogs of post in Customs, as well as delays in people getting help back into work and the closure of over 500 Jobcentres and benefit offices."
He added: "These additional cuts confirmed today will lead to 25,000 jobs going in Customs by 2011 and puts at serious risk the government's ability to deliver on key priorities."