The mild-mannered head of the Audit Commission has lit the blue touchpaper and not retired — making him extremely rare among officials who usually save inconvenient truths for their valedictory speeches.

The outraged reaction to Steve Bundred’s suggestion that a year’s pay freeze for public sector workers could help to save Britain from bankruptcy shows a fascinating disconnection from reality. I am reliably told that civil servants are quietly planning for possible 20 per cent cuts in public expenditure, and that some local authorities are discussing cuts of up to 30 per cent at awaydays. But the public sector unions noisily protest that their workers “should not be punished for private sector greed”.

The unions have been abetted by sage commentators who have remarked, variously, that retiring on a full pension at 55 is a “right”, that average public sector pay is greater than average private sector pay because public sector workers are more “skilled”, and that Mr Bundred is a “fat cat” whose own quango should be abolished.

The outrage rather misses the point. There is no money. The private sector pays the public sector’s wages, and you can only stiff the private sector for so much. There is no sympathy among private sector workers, a third of whom have already swallowed pay freezes, for bureaucrats who have trussed them up for years with red tape. Reading of the secret pay deals handed to police chiefs who are supposed to uphold the law, of the huge pension pots of BBC executives who tell us what to think, of the NHS chief executives who have given themselves pay increases that in percentage terms are twice those they gave their staff, it is hard not to conclude that many public sector executives have sought to grab private sector packages without any of the risks. Last year, I was collared by an eminent mandarin who said that permanent secretaries should earn the same as FTSE 100 chief executives. Let him try running M&S.

Of course, it was greedy bankers who triggered the recession. But the economy will recover, thanks to clever businesses. The gaping hole in the public finances was dug years ago by a government that was greedy for votes and sought headlines by means of a reckless spending spree. It will take at least a generation to pay for that folly. People who think that they have a divine, unionised right to ever more dosh (a mentality that is not confined to the public sector, as British Airways cabin crew showed last week) underestimate the simmering wrath of those who for years have footed the bill.

It would be odd to ignore public sector pay when trying to balance the books, since this makes up a quarter of the Government’s outlay. The public sector wage bill has risen by about £7 billion a year for the past five years. With 6.4 million workers, the public sector is so big that a year’s pay freeze could reduce public sector debt by £5 billion. And that is an imperative. Treasury borrowing figures suggest that public sector debt could be 65 per cent of GDP in a year’s time — at which point Britain will have achieved the remarkable feat of having Swedish levels of tax and spend with what you could call Mediterranean levels of public service.

And Spanish practices. While estate agencies turn into coffee bars, and hair salons open late for secretaries doing longer hours, Tube drivers will only work on the line they trained on in case they miss a signal. And postal workers are on strike again. They have not twigged that their refusal to reform will soon make the Royal Mail extinct — and their jobs with it. The hostility to pay restraint, and a freeze is nothing compared with the 7.5 per cent pay cut made by the Irish Government a few months ago, has sent our politicians running a mile from Mr Bundred. But if it’s not pay restraint, it will be job losses.

Behind the issue of pay are three nettles that must be grasped. The first is public sector pensions. Neil Record, the former Bank of England economist, recently put the public sector pension liability at £1.2 trillion, or a staggering 85 per cent of GDP. Here, the gap between public and private sector is not just unfair, it is unsustainable. In the real world, I know no one under 40 who has been offered an inflation-proof, final-salary pension. Most businesses had moved on before my generation even started work. Nor did we ever expect to retire early on a full pension, as almost half of police officers do. It would be wrong not to honour contracts for long-serving frontline workers, especially the lowly paid. But things are surely going to have to get tough at the top.

Allied to this problem is the job for life — another alien concept for my generation. Public sector pensions are generous partly because they are thought of as payment for a lifetime of dedicated (and in some cases, life-saving) service. The problem is that they also trap people into jobs that they have come to loathe. I have met so many teachers who are ground down and ought to get out. I have met bright graduates who would like to teach, but fear getting stuck for life. Public pensions need to be portable, and the State needs to change its notion of job security.

The third nettle is government addiction to bureaucracy as a defence mechanism. The Police and Criminal Evidence Act, which forces officers to record every stop they make on a form that takes seven minutes to fill in, was created to help ministers counter allegations about fabricated evidence. The integrated children’s computer system has trapped social workers at their desks for up to 80 per cent of their day, entering data that is more about protecting ministers than protecting children.

The Government’s mania for data collection has put an intolerable strain on every public service, and on those it should serve. Businesses are as fed up with having to fill out absurd forms as school governors and nurses are. Pay restraint is going to be needed. But so, too, is legislative restraint. The battle ahead is not just private versus public, but front line versus back room. There are too many fat cats in the public sector for unions to bleat about bankers. If they targeted meddling ministers and their endless directives, rather than posturing about greed, they might get a more sympathetic hearing.

Times Recommends

• Fragility always gets my sympathy vote
• Double it and you get the real jobless total
• Has al-Megrahi paid his council tax?