The chancellor said the government had "steered a stable course" in tough economic times.

Pointing to high levels of employment, he said that economic stability would not be undermined.

"Public sector pay rises must be set at a sustainable rate," he warned.

Forum Response: The Work Foundation

A spokesman for the Work Foundation said: "The chancellor has put discipline and restraint in pay at the core of the pre-Budget report. In the last two years, there have already been over 20 long-term pay deals in the public sector, many of which have been well above the rate of inflation. These deals have often been linked to a degree of modernisation."Pay reform needs government to take a more strategic approach to public sector employee relations. For restraint to work in practice the government must match its determination in this area with an equal commitment to a more long-term, non adversarial approach to public sector industrial relations."