The Treasury wants civil service pay cut by a third this year despite a wave of new pay deals coming into force.

Official notes leaked to the FT set a 3.5 per cent ceiling on wage increases for Whitehall and government agencies in 2004. Last year public sector workers saw a 5.4 per cent rise.

The move has come in a bid to control public sector borrowing and spending despite the prime minister's pledge yesterday to reward the more able civil servants.

The prime minister echoed the key theme of Sir Peter Gershon's review of government efficiency with a call for a "smaller, more strategic centre".