The TUC General Secretary calls on Gordon Brown today to rethink his 2 per cent public sector pay squeeze, declaring that it is causing “simmering resentment”.

In a reminder to the Prime Minister of looming troubles in the new year, Brendan Barber says that the plan for three more years of restraint will threaten the recruitment, retention and morale of public servants and damage an industrial relations system that has minimised conflict in the public sector.

Ministers may say that real wage cuts in the public sector are needed to fight inflation, Mr Barber says in his new year message, but the evidence shows that public sector pay follows inflation rather than causing it, and that bearing down on public sector pay has had no impact in the private sector. “In any case, experts agree that pay is not currently driving inflation,” he says. “It is not too late for ministers to think again.

“Public servants have already suffered a cut in their living standards this year but the Government is planning a further three years of reduced living standards. The arguments for doing this do not stack up, and the risks are big.”

The warning on pay came amid further evidence that Mr Brown already has a tough fight on his hands to avoid parliamentary defeats in the coming year on his plan to extend to 42 days the time terrorist suspects can be held without charge, and on MPs’ pay.

A survey of MPs by the polling organisation ComRes on behalf of the pressure group Liberty suggested that only a third of MPs backed tougher terrorism laws. Tony McNulty, the counter-terrorism minister, insisted yesterday that MPs would eventually back the plan when they understood that the longer detention would happen only in the rarest of circumstances.

In the meantime, one of the outsiders appointed as ministers by Mr Brown, Lord Jones of Birmingham, the Trade Promotion Minsiter, conceded that many in the business community had been shocked by the speed of changes to capital gains tax. All legislation could have unintended consequences but the Government was listening to businesses, he added. “I think it is fair to say a lot of people were shocked by it because it was so swift and so fast,” he said on BBC Radio 4’s The World at One. “The trouble with legislation . . . is [that] it has to apply to everybody. It is a universal application.”

Mr Barber also calls for a big debate on inequality after complaining that Britain has a growing group of “soara-way super-rich” whose lives are cut off from the rest of society.

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