Mortgage lenders should pass on the benefits of interest-rate cuts to their customers, Gordon Brown and Alistair Darling said yesterday, amid growing pressure for rates to be reduced again tomorrow.

In his second intervention over prices in two days. Mr Darling, the Chancellor, said that there was an expectation that, just as mortgages go up after rate increases, consumers would inherit reductions and the lenders should live up to their part of the deal. Mr Darling also came close to suggesting that the Bank of England should reduce interest rates again tomorrow and Mr Brown corrected a slip that suggested that he believed that another cut was on the way. At the same time Mr Brown and Mr Darling announced plans to introduce three-year pay deals where possible in the public sector. Under the proposals police, nurses, teachers and local government staff would be among those whose pay could be fixed years in advance.

In the first move last night Jacqui Smith, the Home Secretary, wrote to the Police Federation and the Association of Chief Police Officers proposing a “multi-year settlement” with the police and promising that if there were such a deal it could be implemented in full. The move was being presented by officials as an attempt to end this year’s row over staging the police award.

Speaking alongside Mr Brown at the Prime Minister’s monthly press conference, the Chancellor repeated his demand that power companies should also bring energy prices down when possible. Asked whether banks and building societies had a duty to pass on reductions in the cost of central borrowing to customers, Mr Brown said that they had a duty to take this into account.

Mr Darling said that the relationship between lender and borrower was commercial but he added: “I would hope that if interest rates continued to come down then the benefit of that reduction would be passed on to mortgage payers. Just as people recognise that when interest rates go up their mortgage rates go up, they expect that when interest rates come down the lenders will reduce the rates so that they can benefit. It is part of the deal.”

The comments come amid reports that several big mortgage lenders failed to pass on the rate cut in December; surveys have suggested that 18 of the country’s 103 mortgage lenders have not reduced the cost of borrowing since the Bank cut rates by a quarter of a point on December 6, and 16 others have brought down rates by less a quarter point.

Mr Brown told the press conference that his difficult decision to stage public-sector pay awards last year had helped to “break the back” of inflation. “To send out the best possible message about long-term inflation and about stability and to be fair to public-sector workers, one way forward is a move towards long-term public-sector pay settlements,” he said. “While this will not be appropriate in all cases, we will be working, where relevant, with the professions to consider this option for the future.”

Mr Darling said: “We remain committed to creating a platform of stability, and will continue to do that as we have in the last year with public-sector pay. Our aim is to have awards that are consistent with the achievement of the inflation target of 2 per cent, that are affordable, but that we want to move towards a position where we have long-term pay awards.

“Because we believe they will be good for public-service employees and their families, they will provide stability and certainty for the economy and departments, which have had three-year settlements for some time now, would be able to plan much more efficiently.”

Mr Brown faces opposition from the unions, some of whom said that longer deals could leave workers worse off. Peter Carter, the general secretary of the Royal College of Nursing, said that it was interested in discussing three-year deals with the Government if it could get a fair deal. He said: “Our members are actually going to be very cautious because they have still not recovered from the bruising they received last year. There is not a lot of trust out there at the moment. However, we are prepared to take this in good faith and we will be sitting down with the representatives of the Government later this week . . . but we really do want to see the detail.”

Brendan Barber, the General Secretary of the TUC, said that long-term pay deals could be agreed but only on certain terms. “The problem is, last year we saw the Government impose pay deals of only around 2 per cent,” he said. “Inflation was running at over 4 per cent, so millions of public service workers saw themselves facing a real cut in their living standards. Longer-term deals can help create the space to address some of those longer-term issues, but unions will only buy into this kind of idea if they are very confident that people’s living standards will be protected throughout the period of a deal.”

Mr Brown hurriedly corrected himself when he appeared to suggest that the Bank of England was about to cut interest rates. The Government insists on the Bank’s independence but Mr Brown went close to hinting that he knew what was coming. He said: “With expected inflation low over the next period of time, it makes it possible – made it possible,” he said, hastily correcting his tenses, “for the Bank to cut interest rates late last year.”

Mr Darling suggested that action on inflation had given the Bank room for manoeuvre to make last month’s cut and said that there could be room to do more.